Unassociated Document
As
filed with the Securities and Exchange Commission on March 31, 2009
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
|
o
|
REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
OR
|
þ
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
| |
For
the Fiscal Year Ended: December 31,
2008
|
OR
|
o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
OR
|
o
|
SHELL COMPANY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
000-51341
(Commission
file number)
GENTIUM
S.p.A.
(Exact
Name of Registrant as Specified in its Charter)
NOT
APPLICABLE
(Translation
of Registrant’s Name into English)
Italy
(Jurisdiction
of incorporation or organization)
Piazza
XX Settembre 2
22079
Villa Guardia (Como), Italy
+39
031 385111
(Address,
including zip code, and telephone number,
including
area code, of Registrant’s principal executive offices)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act.
|
|
|
Name
of each exchange
|
|
Title
of each class
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|
on
which registered
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American
Depositary Shares
|
|
|
The
Nasdaq Global Market
|
|
Ordinary
shares with a par value of €1.00 each*
|
|
|
The
Nasdaq Global Market
|
(Title of
Class)
Securities
registered or to be registered pursuant to Section 12(g) of the Act: None
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual
report.
14,956,317 ordinary
shares
|
•
|
|
Not
for trading, but only in connection with the registration of the American
Depositary Shares.
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
Note –
Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from
their obligations under those Sections.
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in rule 12b-2 of the Exchange
Act. (Check one):
|
|
|
|
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer þ
|
Indicate
by check mark which financial statement item the registrant has elected to
follow.
If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Not
applicable.
TABLE
OF CONTENTS
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78 |
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79 |
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79 |
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Not
applicable.
Not
applicable.
GENTIUM
S.P.A.
We are a
biopharmaceutical company focused on the development and manufacture of
defibrotide, a DNA based drug derived from pig intestines, to treat and prevent
a disease called hepatic veno-occlusive disease, or VOD, a condition in which
some of the veins in the liver are blocked as a result of cancer treatments such
as chemotherapy or radiation treatments that are given prior to stem cell
transplantation. Severe VOD is the most extreme form of VOD and is
associated with multiple-organ failure. We are concluding a Phase III clinical
trial of defibrotide to treat severe VOD in the United States, Canada and
Israel, but do not believe that this current Phase III clinical trial will
produce sufficient data to obtain regulatory approval in the United States or
Europe; however we do expect to utilize this data as supportive data for future
clinical trials. We are also conducting a Phase II/III clinical trial of
defibrotide in Europe to prevent VOD in children, which we believe could provide
contingent regulatory approval in Europe upon positive data. We are
currently working on a revised strategy with our commercial partner regarding
the treatment indication of defibrotide.
We have a
plant in Italy where we manufacture active pharmaceutical ingredients, which are
used to make the finished forms of various drugs. One of those active
pharmaceutical ingredients is defibrotide. The other active
pharmaceutical ingredients that we manufacture for sale are urokinase, calcium
heparin, sodium heparin and sulglicotide. We sell these other active
pharmaceutical ingredients to other companies to be made into various
drugs. All of the Company’s operating assets are located in
Italy.
We have
prepared our financial statements assuming that we will continue as a going
concern, which contemplates realization of assets and satisfaction of
liabilities in the normal course of business. We have accumulated a deficit of
€95.11 million since
inception and expect to continue to incur net operating losses for the
foreseeable future and may never become profitable. We have not generated any
revenues from our primary product candidate, other than for limited use in
Italy, and are dependent upon significant financing
or alternative funding to provide the working capital necessary to execute our
business plan. We currently anticipate that our cash and cash
equivalents as of December 31, 2008 are sufficient to meet our
anticipated working capital and operating needs
through August of 2009. Accordingly, if we do not obtain sufficient funding in
the near future, we will not be able to continue as a going
concern.
The
following selected financial data should be read in conjunction with “Operating
and Financial Review and Prospects” and our financial statements and the related
notes appearing elsewhere in this annual report. The selected
financial data as of December 31, 2007 and December 31, 2008 and for each of the
three years ended December 31, 2008 are derived from our audited financial
statements, which are included in this annual report. The selected
financial data as of December 31, 2004, December 31, 2005 and December 31, 2006
and for the years ended December 31, 2004 and December 31, 2005 has been derived
from our audited financial statements, which are not included in this annual
report. Our historical results are not necessarily indicative of
results to be expected in any future period.
Certain
reclassification of prior period amounts have been made to our financial
statements to conform to the current period presentation. The
convenience translation into U.S. dollars has been done solely for the benefit
of the reader, and does not imply that our results would actually have been
these amounts in U.S. dollars had the U.S. dollar been our functional
currency.
|
Statement
of Operations Data:
|
|
For
the Years Ended December 31,
|
|
|
(000s
omitted except per share data)
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008(1)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales to related party
|
|
€ |
2,870 |
|
|
€ |
3,260 |
|
|
€ |
3,754 |
|
|
€ |
2,704 |
|
|
€ |
651 |
|
|
$ |
906 |
|
|
Product
sales to third parties
|
|
|
243 |
|
|
|
101 |
|
|
|
321 |
|
|
|
2,390 |
|
|
|
4,792 |
|
|
|
6,670 |
|
|
Total
product sales
|
|
|
3,113 |
|
|
|
3,361 |
|
|
|
4,075 |
|
|
|
5,094 |
|
|
|
5,443 |
|
|
|
7,576 |
|
|
Other
revenue
|
|
|
583 |
|
|
|
280 |
|
|
|
249 |
|
|
|
2,515 |
|
|
|
1,995 |
|
|
|
2,777 |
|
|
Total
revenues
|
|
|
3,696 |
|
|
|
3,641 |
|
|
|
4,324 |
|
|
|
7,609 |
|
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|
7,438 |
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|
10,353 |
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Operating
costs and expenses:
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Cost
of goods sold
|
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|
2,579 |
|
|
|
2,911 |
|
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|
3,092 |
|
|
|
4,584 |
|
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|
5,596 |
|
|
|
7,789 |
|
|
Charges
from related parties
|
|
|
1,665 |
|
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|
1,047 |
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|
854 |
|
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|
748 |
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|
|
537 |
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|
747 |
|
|
Research
and development
|
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|
2,922 |
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|
4,557 |
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|
8,927 |
|
|
|
14,497 |
|
|
|
9,569 |
|
|
|
13,319 |
|
|
General
and administrative
|
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|
1,194 |
|
|
|
2,284 |
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|
5,421 |
|
|
|
6,279 |
|
|
|
7,668 |
|
|
|
10,673 |
|
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Depreciation
and amortization
|
|
|
89 |
|
|
|
118 |
|
|
|
261 |
|
|
|
725 |
|
|
|
998 |
|
|
|
1,389 |
|
|
Write-down
of assets
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,740 |
|
|
|
3,403 |
|
|
|
4,737 |
|
|
|
|
|
8,449 |
|
|
|
10,917 |
|
|
|
18,555 |
|
|
|
40,573 |
|
|
|
27,
771 |
|
|
|
38,654 |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Operating
loss
|
|
|
(4,753 |
) |
|
|
(7,276 |
) |
|
|
(14,231 |
) |
|
|
(32,964 |
) |
|
|
(20,333 |
) |
|
|
(28,302 |
) |
|
|
|
|
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|
|
|
|
|
|
|
|
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|
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|
|
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|
Foreign
currency exchange gain (loss), net
|
|
|
(55 |
) |
|
|
(249 |
) |
|
|
(627 |
) |
|
|
(4,001 |
) |
|
|
173 |
|
|
|
241 |
|
|
Interest
income (expense), net
|
|
|
(2,192 |
) |
|
|
(4,148 |
) |
|
|
490 |
|
|
|
1,357 |
|
|
|
256 |
|
|
|
356 |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income loss
|
|
|
(7,000 |
) |
|
|
(11,673 |
) |
|
|
(14,368 |
) |
|
|
(35,608 |
) |
|
|
(19,904 |
) |
|
|
(27,704 |
) |
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
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Income
tax expense (benefit):
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
65 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Deferred
|
|
|
(37 |
) |
|
|
646 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
28 |
|
|
|
646 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
€ |
(7,028 |
) |
|
€ |
(12,319 |
) |
|
€ |
(14,368 |
) |
|
€ |
(35,608 |
) |
|
€ |
(19,904 |
) |
|
$ |
(27,704 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
€ |
(1.41 |
) |
|
€ |
(1.78 |
) |
|
€ |
(1.33 |
) |
|
€ |
(2.52 |
) |
|
€ |
(1.33 |
) |
|
$ |
(1.85 |
) |
|
(1)
|
Euro
amounts are translated into U.S. dollars using the Noon Buying Rate for
the Euro on December 31, 2008, of US$1.3919 per Euro. No
representation is made that the Euro amounts referred to in this annual
report could have been or could be converted into U.S. dollars at any
particular rate or at all.
|
The
following table summarizes certain of our balance sheet data.
|
(000s
omitted except per share data
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008(1)
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
€ |
2,461 |
|
|
€ |
12,785 |
|
|
€ |
10,205 |
|
|
€ |
25,964 |
|
|
€ |
11,491 |
|
|
$ |
15,994 |
|
|
Working
capital (deficit)
|
|
|
(7,611 |
) |
|
|
11,758 |
|
|
|
13,543 |
|
|
|
19,002 |
|
|
|
3,152 |
|
|
|
4,387 |
|
|
Property,
net
|
|
|
8,543 |
|
|
|
8,631 |
|
|
|
9,424 |
|
|
|
11,544 |
|
|
|
10,751 |
|
|
|
14,964 |
|
|
Total
assets
|
|
|
15,909 |
|
|
|
26,113 |
|
|
|
35,393 |
|
|
|
51,959 |
|
|
|
26,901 |
|
|
|
37,444 |
|
|
Long-term
debt, net of current maturities
|
|
|
3,361 |
|
|
|
2,485 |
|
|
|
5,683 |
|
|
|
4,421 |
|
|
|
3.268 |
|
|
|
4,549 |
|
|
Shareholders’
equity (deficit)
|
|
|
(2,074 |
) |
|
|
17,474 |
|
|
|
21,687 |
|
|
|
28,359 |
|
|
|
10,451 |
|
|
|
14,547 |
|
|
Capital
stock
|
|
€ |
5,000 |
|
|
€ |
9,611 |
|
|
€ |
11,774 |
|
|
€ |
14,946 |
|
|
€ |
14,956 |
|
|
$ |
20,817 |
|
|
Number
of shares
|
|
|
5,000,000 |
|
|
|
9,610,630 |
|
|
|
11,773,613 |
|
|
|
14,946,317 |
|
|
|
14,956,317 |
|
|
|
14,956,317 |
|
|
|
(1)
|
Euro
amounts are translated into U.S. dollars using the Noon Buying Rate for
the Euro on December 31, 2008, of US$1.3919 per Euro. No
representation is made that the Euro amounts referred to in this annual
report could have been or could be converted into U.S. dollars at any
particular rate or at all.
|
Exchange
Rate Information
Fluctuations
in the exchange rates between the Euro and the U.S. dollar will affect the U.S.
dollar amounts received by owners of ADSs on conversion by the depositary of
dividends, if any, paid in euros on the ordinary shares represented by the ADSs.
Moreover, such fluctuations may also affect the U.S. dollar price of the ADSs on
the Nasdaq Global Market. The following table sets forth information regarding
the exchange rates of U.S. dollars per Euro for the periods indicated,
calculated by using the average of the noon buying rates on the last day of each
month during the periods presented.
|
|
|
U.S.
Dollar per Euro
|
|
|
Year
|
|
Average
|
|
|
Period
End
|
|
| |
|
|
|
|
|
|
|
2004
|
|
|
1.2478 |
|
|
|
1.3538 |
|
|
2005
|
|
|
1.2400 |
|
|
|
1.1842 |
|
|
2006
|
|
|
1.2661 |
|
|
|
1.3197 |
|
|
2007
|
|
|
1.3797 |
|
|
|
1.4603 |
|
|
2008
|
|
|
1.4695 |
|
|
|
1.3919 |
|
Source:
Federal Reserve Statistical Releases H.10 and G.5
The
following table sets forth information regarding the high and low exchange rates
of U.S. dollars per Euro for the periods indicated using the noon buying rate on
each day of such period.
| |
|
|
U.S.
Dollar per Euro
|
|
|
Month
|
|
|
High
|
|
|
|
Low
|
|
| |
|
|
|
|
|
|
|
|
|
September
2008
|
|
|
1.4737 |
|
|
|
1.3939 |
|
|
October
2008
|
|
|
1.4058 |
|
|
|
1.2446 |
|
|
November
2008
|
|
|
1.3039 |
|
|
|
1.2525 |
|
|
December
2008
|
|
|
1.4358 |
|
|
|
1.2634 |
|
|
January
2009
|
|
|
1.3946 |
|
|
|
1.2804 |
|
|
February
2009
|
|
|
1.3064 |
|
|
|
1.2547 |
|
|
March
2009 (through March 27, 2009)
|
|
|
1.3730 |
|
|
|
1.2549 |
|
Source:
Federal Reserve Statistical Release H.10
On March
27, 2009, the noon buying rate was €1.00 to $1.3306.
We use
the Euro as our functional currency for financial reporting. This
annual report contains translations of euros into U.S. dollars at specified
rates solely for the convenience of the reader. No representation is made that
the Euro amounts referred to in this annual report could have been or could be
converted into U.S. dollars at any particular rate or at all.
Not
applicable.
Not
applicable.
You
should carefully consider the risks described below, in conjunction with the
other information and financial statements and related notes included elsewhere
in this annual report, before making an investment decision. You should pay
particular attention to the fact that we conduct our operations in Italy and are
governed by a legal and regulatory environment that in some respects differs
significantly from the environment that prevails in other countries with which
you may be familiar. Our business, financial condition or results of operations
could be affected materially and adversely by any or all of these risks. In that
event, the market price of our ADSs could decline and you could lose all or part
of your investment.
Risks Relating to Our
Business
We
may not be able to meet our cash requirements beyond August of 2009 without
obtaining additional capital from external sources, and if we are unable to do
so, we may not be able to continue as a going concern.
As
of December 31, 2008, we had €11.49 million in cash and cash
equivalents. Subsequent to December 31, 2008, we made a final
installment payment of €4 million to Crinos S.p.A. related to the acquisition of
marketing authorizations and trademarks for Prociclide and Noravid (both forms
of defibrotide). As of the date of this report, we anticipate that
our current cash will meet our cash requirements through August of
2009. However, in order for us to continue as a going concern beyond
this point, we will need to obtain capital from external sources.
We have generated net losses since
our inception. Our net losses for the year ended December 31, 2008
and for the year ended December 31, 2007 were €19.90 million and €35.61
million, respectively. We will not be able to continue as a going
concern without additional financing. Even if we do raise sufficient capital
to support our operating expenses beyond August 2009, there can be no assurances
that the proceeds raised
will be sufficient to enable us to develop our business to a level where it will
generate profits and cash flows from operations. We expect to
incur significant losses over the next several years as we conclude our clinical
trials, begin new clinical trials, apply for regulatory approvals, continue to
develop defibrotide, and pursue commercialization efforts and related
activities. Our long-term ability to generate cash from operations is
dependent in part on the success of our current strategic partner, Sigma-Tau
Pharmaceuticals, Inc., as well as the likelihood and timing of new strategic
licensing and partnering relationships and/or successful commercialization of
defibrotide. If we incur operating losses for longer than we expect
and/or we are unable to raise additional capital, we may become insolvent and
unable to continue our operations.
Since our inception, we have financed
our operations primarily through the sale of equity and convertible notes,
interest income earned on cash and cash equivalents, and debt provided through
secured lines of credit. If we
raise additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders could be significantly
diluted, and these newly-issued securities may have rights,
preferences or privileges senior to those of existing stockholders. If we obtain
additional debt financing, a substantial portion of our operating cash flow may
be dedicated to the payment of principal and interest on such indebtedness, and the terms of the
debt securities issued could impose significant restrictions on our
operations.
We have received a report from Reconta
Ernst & Young S.p.A. (the Italian affiliate of Ernst & Young LLP),
our independent registered public accounting firm, regarding our US
GAAP financial statements as of December 31, 2008 and for the fiscal year
then ended, which included an explanatory paragraph stating that our recurring
operating losses and need for additional financing have raised substantial doubt about our ability to
continue as a going concern. This going concern explanatory paragraph
included in our auditor’s report could inhibit our ability to
enter into strategic alliances or our ability to raise additional
capital.
Many economists are now predicting
that the global economy may face a prolonged recession as a result of the
deterioration in the credit markets and related financial crisis, as well as a
variety of other factors. While the ultimate outcome of these events cannot be
predicted, they may have a material adverse effect on our liquidity and
financial condition if our ability to raise additional funds were to be
impaired. The ability of potential patients and/or healthcare payers
to pay for defibrotide treatments could also be adversely impacted, thereby
limiting our potential revenue. In addition, any negative impacts on our
collaborative partners could limit potential revenue from
defibrotide.
We had a material weakness in our
internal controls over financial reporting as of December 31,
2008.
In
connection with the audit of our financial statements for the fiscal year ended
December 31, 2008, a material weakness in our internal controls over financial
reporting was discovered. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the
company’s annual or interim financial statements will not be prevented or
detected on a timely basis.
The material weakness related to the
operation of controls to review and approve the accounting for certain
non-routine and estimation processes. As a result, material adjustments to
several of our significant accounts and financial statement disclosures,
including intangible assets, accounts receivable from related parties, other
assets, and operating expenses, were required.
We will take steps to address the
material weakness, which we believe will require management’s review of
non-routine transactions earlier in the process of closing our
books.
Our
failure to raise additional funds in the future may delay the development of
defibrotide.
The
development and approval of defibrotide will require a commitment of substantial
funds. We are attempting to raise additional funds in advance of
depleting our current funds. For the year ended December 31, 2008,
our average monthly cash used in operating activities was €1.06
million. Capital expenditures for year ended December 31, 2008 was
€0.44 million. You should
review the additional information about our liquidity and capital resources in
the Operating and Financial Review and Prospects section of this annual
report.
Our
future capital requirements are dependent upon many factors, some of which are
beyond our control, including:
|
|
·
|
the
successful and continued development of defibrotide in preclinical and
clinical testing;
|
|
|
·
|
the costs associated with protecting and
expanding our patent and other intellectual property
rights; |
|
|
·
|
future payments, if any, received or made
under existing or possible future collaborative
arrangements; |
|
|
·
|
the costs associated with building a future
commercial infrastructure; |
|
|
·
|
the costs associated with
implementing any upgrades to our manufacturing facility required by the
UnitedStates Food and Drug Administration, or FDA, European Medicines
Agency, or EMEA, or other
regulators;
|
|
|
·
|
the timing of regulatory approvals needed to
market defibrotide; and |
|
|
·
|
market acceptance of
defibrotide. |
We will
need additional funds before we have completed the development of
defibrotide. We cannot assure you that funds will be available to us
in the future on favorable terms, if at all. If adequate funds are
not available to us on terms that we find acceptable, or at all, we may be
required to delay, reduce the scope of, or eliminate research and development
efforts or clinical trials on defibrotide. We may also be forced to curtail,
cease or restructure our operations, obtain funds by entering into arrangements
with collaborators on unattractive terms or relinquish rights to defibrotide
that we would not otherwise relinquish in order to continue independent
operations.
We
have generated limited revenues from commercial sales of our products to date
and have had significant losses in recent years and we do not know whether we
will ever generate significant revenues or achieve profitability.
We are
focused on product development and have generated limited revenues from
commercial sales of our products to date. We had total product sales
of €4.08 million, €5.09 million and €5.44 million, in 2006, 2007 and 2008,
respectively. Even
if we are successful selling defibrotide, we may have very limited markets and
may not generate enough revenues from defibrotide to fund our
business. The FDA and EMEA have designated defibrotide to treat VOD
and defibrotide to prevent VOD, as “orphan drugs,” which generally means that
fewer than 200,000 people are affected by the disease or condition.
We expect
to continue to incur significant expenses as we develop and seek regulatory
approval for defibrotide. We incurred a net loss of €14.37 million, €35.61
million and €19.90 million in 2006, 2007 and 2008, respectively. We cannot
assure you that we will ever become profitable. If we fail to achieve
profitability within the time frame expected by investors or securities
analysts, the market price of our American Depositary Shares (“ADSs”) may
decline.
We
currently do not have any regulatory approvals to sell defibrotide to treat or
prevent VOD, and we cannot guarantee that we will ever be able to sell
defibrotide to treat or prevent VOD anywhere in the world.
We must
demonstrate that defibrotide satisfies rigorous standards of safety and
effectiveness before the FDA, EMEA and other regulatory authorities will approve
defibrotide for commercial marketing. We or others must conduct clinical trials
of defibrotide, which must be approved by the FDA or other regulatory agencies.
These trials are time-consuming and expensive, and we cannot guarantee whether
they will be successful. We do not have approval to sell defibrotide
to treat or prevent VOD. We will need to conduct significant
additional research, preclinical testing and clinical testing before we can file
applications with the FDA, EMEA and other regulatory authorities for approval
defibrotide. As a result, we may not be able to sell defibrotide
anywhere in the world.
The
FDA and other regulatory authorities may require us to conduct other clinical
trials of defibrotide to treat severe VOD or prevent VOD.
The
Dana-Farber Cancer Institute at Harvard University conducted a Phase II clinical
trial in the United States for the use of defibrotide to treat severe VOD that
concluded in December 2005. Based upon a historical study conducted
by Dana-Farber at three centers consisting of 38 patients, we believe that,
without treatment, the complete response rate within 100 days after stem cell
transplantation is approximately 11% and the survival rate for this disease is
approximately 20% after 100 days. As a result of this research and
belief and the fact that we believe that there are no approved treatments
available at this time, the Dana-Farber clinical investigators did not establish
a control group of patients who do not receive the drug, as is customarily done
in the FDA approval process, on the basis that it would be unethical to refuse
treatment to patients when the treatment being investigated could potentially
save their lives. The FDA has stated a preference for a study that
utilizes a concurrent control group of untreated patients, but indicated that
they would review a trial using a historical control group of untreated patients
only. Our current Phase III clinical trial of defibrotide to treat
severe VOD used a separate historical control group of untreated patients
only.
We do not
believe that our current Phase III clinical trial of defibrotide to treat severe
VOD will produce sufficient data to obtain regulatory approval in the United
States or Europe; however we do expect to utilize this data as supportive data
for future clinical trials. We will likely have to conduct a new
clinical trial of defibrotide to treat VOD using a concurrent control group of
untreated patients. We currently do not, and we may never, have
enough capital to commence and complete a new clinical trial of defibrotide to
treat severe VOD. In addition, even if we commence a new clinical
trial, one or more clinical centers where the clinical trial is to be conducted
may not be willing to conduct such a clinical trial on the basis that it is
unethical to refuse treatment to patients when the treatment being investigated
could potentially save their lives. The committee of clinical
investigators who sponsored a Phase II/III clinical trial of defibrotide to
treat VOD in Europe conducted by Consorzio Mario Negri Sud, which had a
concurrent control group of untreated patients, cancelled the trial in October
2005 due to a lack of patients enrolling. We believe that patients
were reluctant to enroll due to the possibility of being placed into the control
group and not receiving treatment. Therefore, we may never be able to
obtain regulatory approval of defibrotide to treat VOD.
In
January 2009, we completed enrollment of our Phase II/III clinical trial of
defibrotide to prevent VOD in children in Europe. While EMEA may
eventually grant us approval for this indication in Europe, and any such
approval may be conditioned upon running an additional trial, which we may not
be able to fund. In addition, the FDA may require us to provide
sufficient data on our treatment indication to support approval for our
prevention indication. Our current Phase III trial is not likely to
produce sufficient data to support approval in the United States for our
prevention indication and we may not be able to commence and complete a new
trial for the treatment of VOD. Accordingly, we may not be able to
obtain US regulatory approval of defibrotide to prevent VOD.
We
may be required to suspend or discontinue clinical trials due to adverse events
or other safety issues that could preclude approval of defibrotide.
Our
clinical trials may be suspended at any time for a number of safety-related
reasons. For example, we may voluntarily suspend or terminate our clinical
trials if at any time we believe that defibrotide prevents an unacceptable risk
to the clinical trial patients. In addition, institutional review boards or
regulatory agencies may order the temporary or permanent discontinuation of our
clinical trials at any time if they believe that the clinical trials are not
being conducted in accordance with applicable regulatory requirements, including
if they present an unacceptable safety risk to patients.
Administering
any product candidate to humans may produce undesirable side effects. VOD is a
complication associated with high dose chemotherapy and stem cell
transplantation. Adverse events involving vascular disorders, coagulation, and
potentially life-threatening bleeding have been reported in
patients with VOD treated with defibrotide which potentially could be related to
the defibrotide therapy. Hypotension has been reported as a possibly
related serious adverse event in the trials of defibrotide to treat severe VOD.
Also, we discontinued a 69-patient Phase I/II clinical trial of defibrotide to
prevent deep vein thrombosis after hip surgery in Denmark in 2002 after three
patients experienced hypotension after receiving the defibrotide intravenously.
That trial was discontinued due to the hypotension and because defibrotide can
also be administered orally to prevent deep vein thrombosis. These adverse
events reports will be weighed by the FDA and other regulatory authorities in
determining whether defibrotide can, from a risk-benefit perspective, be
considered to be safe and effective to treat severe VOD, to prevent deep vein
thrombosis or any other indication for which approval is sought.
It is
possible that as further data are collected and analyzed, additional adverse
events or safety issues could emerge which could impact conclusions relating to
the safety of defibrotide. Any problems that arise from the use of defibrotide
would severely harm our business operations.
We
expect to rely upon our affiliates, FinSirton S.p.A. and Sirton Pharmaceuticals
S.p.A., for various services, and we may not be able to quickly replace these
services if either FinSirton or Sirton, or both, go bankrupt.
We depend on a number of services from
Sirton Pharmaceuticals S.p.A., including steam related to our manufacturing
plant, and lab space. In addition, we currently rely upon Sirton to
fill and finish defibrotide for use in our clinical trials and compassionate use
programs. We also lease lab, storage and office space from Sirton’s
parent company, FinSirton S.p.A. As discussed in the below risk
factor, Sirton has not been able to pay its receivable to us. If
FinSirton or Sirton, or both, were to go bankrupt or otherwise cease in
providing these services, we may not be able to replace these services in a
timely manner. Such a delay would impact our clinical trials,
compassionate use programs, and impact our revenues.
Sirton,
who is our affiliate, owes us a large receivable that we may not be able to
collect.
At December 31, 2008, Sirton owed us a
receivable of €2.10 million and we owed Sirton a payable of €0.30
million. Sirton has been unable to make timely payments on the
outstanding receivables. In 2008, the Company and Sirton formally
offset €3.23 million of payables due to Sirton against the same amount of
receivables due from Sirton. We may never be able to collect the net receivables
due to us from Sirton.
Defibrotide
could be subject to restrictions or withdrawal from the market and we may be
subject to penalties if we fail to comply with regulatory requirements, if and
when defibrotide is approved.
Any
product for which we obtain marketing approval, together with the manufacturing
processes, post-approval commitments, and advertising and promotional activities
for such product, will be subject to continued regulation by the FDA and other
regulatory agencies. Later discovery of previously unknown problems
with defibrotide or its manufacture, or failure to comply with regulatory
requirements, may result in:
|
|
·
|
restrictions on defibrotide or manufacturing
processes; |
|
|
·
|
withdrawal of defibrotide from the
market; |
|
|
·
|
voluntary or mandatory
recalls; |
|
|
·
|
suspension
of regulatory approvals;
|
|
|
·
|
injunctions or the imposition of civil or
criminal penalties. |
If we are slow to adapt, or unable to
adapt, to changes in existing regulatory requirements or adoption of new
regulatory requirements or policies, we may lose marketing approval for
defibrotide when and if defibrotide is approved.
Our
manufacturing facility and the manufacturing facility of Patheon, who will fill
and finish defibrotide, are subject to continuing regulation by Italian
authorities and are subject to inspection and regulation by the FDA and
EMEA. These authorities could force us to stop manufacturing our
products if they determine that we or Patheon are not complying with applicable
regulations or require us to complete further costly alterations to our
facilities.
We
manufacture active pharmaceutical ingredients at our manufacturing facility in
Italy. We have hired Patheon to process our lead active
pharmaceutical ingredient, defibrotide, into the finished drug at Patheon’s
manufacturing facility. These facilities are subject to continuing
regulation by the Italian Health Authority and other Italian regulatory
authorities with respect to manufacturing our current products. The
facilities are also subject to inspection and regulation by the FDA and EMEA
with respect to manufacturing our product candidates for investigational use.
Also, part of the process for obtaining approval from the FDA and EMEA for
defibrotide is approval by those authorities of these manufacturing facilities
compliance with current good manufacturing practices. After receiving initial
approval, if any, the FDA or EMEA will continue to inspect our manufacturing
facilities, including inspecting them unannounced, to confirm whether we and
Patheon are complying with the good manufacturing practices.
These
regulators may require us to stop manufacturing our products and may deny us
approval to manufacture our product candidates if they determine that we or
Patheon are not complying with applicable regulations. In addition,
these regulators may require us to complete costly alterations to our
facilities.
We
expect to rely upon a sole processor, Patheon Italia S.p.A., to fill and finish
defibrotide into marketable formulations, and we may not be able to quickly
replace Patheon if it fails in its duties.
We have
entered into an agreement with Patheon Italia S.p.A. to fill and finish
defibrotide. If Patheon does not or is not able to perform these
services for any reason, it may take us time to find a replacement
processor. Such a delay could potentially put us in breach of our
contractual obligations into which we may enter, violate local laws requiring us
to deliver the product to those in need and impact our revenues.
We
may have difficulty obtaining raw material for defibrotide.
Defibrotide
is based on pig intestines. If our current sources of pig intestines
develop safety problems or other issues that impact our supply of pig
intestines, we may not be able to find alternative suppliers in a timely
fashion. In that case, we would have to slow or cease our manufacture
of defibrotide.
If
our third-party clinical trial vendors fail to comply with strict regulations,
the clinical trials for defibrotide may be delayed or unsuccessful.
We do not
have the personnel capacity to conduct or manage all of the clinical trials that
we intend for defibrotide. We rely on third parties to assist us in managing,
monitoring and conducting our clinical trials. We have entered into
and expect to continue to enter into clinical trial agreements with numerous
centers in the United States, Canada and Israel regarding our Phase III clinical
trial of defibrotide to treat severe VOD. We have entered into a
co-sponsoring agreement with the European Group for Blood and Marrow
Transplantation, regarding a Phase II/III clinical trial of defibrotide to
prevent VOD in children in Europe. We have entered into an agreement
with MDS Pharma Services (U.S.) Inc. to perform clinical research services in
connection with clinical trials conducted in the United States and agreements
with KKS-UKT, GmbH and MDS Pharma Services S.p.A. to provide such services for
our clinical trials in Europe. If these third parties fail to comply with
applicable regulations or do not adequately fulfill their obligations under the
terms of our agreements with them, we may not be able to enter into alternative
arrangements without undue delay or additional expenditures and, therefore, the
clinical trials for defibrotide may be delayed or unsuccessful.
Furthermore,
the FDA can be expected to inspect some or all of the clinical sites
participating in our clinical trials, or our third party vendors’ sites, to
determine if our clinical trials are being conducted according to good clinical
practices. If the FDA determines that these clinical sites or our third-party
vendors are not in compliance with applicable regulations, we may be required to
delay, repeat or terminate the clinical trials. Any delay, repetition or
termination of our clinical trials could materially harm our
business.
We
are currently dependent on third parties to market and distribute defibrotide in
finished dosage form, and we may continue to be dependent on third parties to
market and distribute defibrotide.
Our
internal ability to handle the marketing and distribution functions for
defibrotide is limited and we do not expect to develop the capability to provide
marketing and distribution for defibrotide. Our long-term strategy
includes either developing marketing and distribution capacity internally or
entering into alliances with third parties to assist in the marketing and
distribution of our product candidates. We have entered into an agreement with
Sigma-Tau Pharmaceuticals, Inc. to market defibrotide to treat VOD in North
America, Central America and South America and we may need to develop these
capabilities internally or enter into similar agreements to market and
distribute defibrotide to prevent VOD. We face, and will continue to
face, intense competition from other companies for collaborative arrangements
with pharmaceutical and biotechnology companies, for establishing relationships
with academic and research institutions, for attracting investigators and sites
capable of conducting our clinical trials and for licenses of proprietary
technology. Moreover, these arrangements are complex to negotiate and
time-consuming to document. Our future profitability will depend in large part
on our ability to enter into effective marketing agreements and our product
revenues will depend on those marketers’ efforts, which may not be
successful.
If
we are unable to attract and retain key personnel, we may be unable to
successfully develop and commercialize defibrotide or otherwise manage our
business effectively.
We are
highly dependent on our senior management, whose services are critical to the
successful implementation of our product acquisition, development and regulatory
strategies. If we lose their services or the services of one or more of the
other members of our senior management or other key employees, our ability to
successfully commercialize defibrotide or otherwise manage our business
effectively could be seriously harmed.
Replacing
key employees may be difficult and may take an extended period of time because
of the limited number of individuals in our industry with the breadth of
specific skills and experience required to develop, gain regulatory approval of
and commercialize defibrotide successfully. Competition to hire from this
limited pool is intense, and we may be unable to hire, train, retain or motivate
these additional key personnel. In addition, under Italian law, we must pay our
Italian employees a severance amount based on their salary and years of service
if they leave their employment, even if we terminate them for cause or they
resign.
In order
to expand our operations, we will need to hire additional personnel and add
corporate functions that we currently do not have. Our ability to manage our
operations and growth will require us to continue to improve our operational,
financial and management controls and reporting system and procedures, or
contract with third parties to provide these capabilities for us.
All
of our manufacturing capability is located in one facility that is vulnerable to
natural disasters, telecommunication and information system failures, terrorism
and similar problems, and we are not insured for losses caused by all of these
incidents.
We
conduct all of our manufacturing operations in one facility located in Villa
Guardia, near Como, Italy. This facility could be damaged by fire, floods,
earthquake, power loss, telecommunication and information system failures,
terrorism or similar events. Our insurance covers losses to our facility,
including the buildings, machinery, electronic equipment and goods, for
approximately €15 million, but does not insure against all of the losses
listed above, including terrorism and some types of flooding. Although we
believe that our insurance coverage is adequate for our current and proposed
operations, there can be no guarantee that it will adequately compensate us for
any losses that may occur. We are not insured for business
interruption and we
have no replacement manufacturing facility readily available.
We
have sold Prociclide and Noravid (both forms of defibrotide) in Italy to treat
vascular disease with risk of thrombosis, which may affect the pricing of
defibrotide for the prevention or treatment of VOD.
Until
December 31, 2008, through our distribution agreement with Crinos S.p.A., we
sold Prociclide and Noravid (both forms of defibrotide) in Italy to treat
vascular disease with risk of thrombosis. While we have stopped
selling Prociclide and Noravid for this treatment in Italy, if defibrotide is
approved for sale in Europe or Italy to treat and prevent VOD, or both, we may
need to also obtain approval from regulators as to what price we can charge for
these uses of defibrotide. The regulators may impose an artificially
low cap on defibrotide based on the relatively low price-point of Prociclide and
Noravid previously sold in Italy for the treatment of vascular disease with risk
of thrombosis.
Our
industry is highly competitive and subject to rapid technological changes. As a
result, we may be unable to compete successfully or to develop innovative
products, which could harm our business.
Our
industry is highly competitive and subject to significant and rapid
technological change as researchers learn more about diseases and develop new
technologies and treatments. While we are unaware of any other products or
product candidates that treat or prevent VOD, we believe that other companies
have products or are currently developing products to treat some of the same
disorders and diseases that defibrotide is designed to treat. These companies
include Genzyme Corp., Millennium Pharmaceuticals, Inc., Otsuka
Pharmaceutical Co., Ltd., Eisai Co., Ltd., and Celgene
Corp.
Many of
these competitors have substantially greater research and development
capabilities and experience, and greater manufacturing, marketing and financial
resources, than we do. In addition, these companies’ products and product
candidates are in more advanced stages of development than ours or have been
approved for sale by the FDA and other regulatory agencies. As a result, these
companies may be able to develop their product candidates faster than we can or
establish their products in the market before we can. Their products may also
prove to be more effective, safer or less costly than defibrotide, which could
hurt our ability to recognize any significant revenues.
In
May 2003, the FDA designated defibrotide as an orphan drug to treat
VOD. In January 2007, the FDA designated defibrotide as an orphan
drug to prevent VOD as well. If the FDA approves the New Drug
Applications that we intend to file before approving a New Drug Application
filed by anyone else for these uses of defibrotide, the orphan drug status will
provide us with limited market exclusivity for seven years from the date of the
FDA’s approval of our New Drug Application. However, a marketing authorization
to another applicant may be granted for the same product if we give our consent
to the second applicant, we are unable to supply sufficient quantities of
defibrotide, or the second applicant can establish in its application that its
product is safer, more effective or otherwise clinically superior to our
product. In that case, our product would not have market exclusivity.
Additionally, while we are not aware of any other company researching
defibrotide for these uses, if another company does develop defibrotide for
these uses, there is no guarantee that the FDA will approve our New Drug
Application before approving the other company’s defibrotide product for these
uses, in which case the first product approved would have market exclusivity and
our products would not be eligible for approval until that exclusivity
expires.
In
July 2004, EMEA designated defibrotide as an orphan medicinal product to
both treat and prevent VOD. If the European regulators grant us a marketing
authorization for those uses of defibrotide, we will have limited market
exclusivity for those uses for ten years after the date of the approval.
However, a marketing authorization may be granted to another applicant for the
same product if we give our consent to the second applicant, we are unable to
supply sufficient quantities of defibrotide, or the second applicant can
establish in its application that its product is safer, more effective or
otherwise clinically superior to our product. In that case, our
product would not have market exclusivity.
If
we are unable to adequately protect our intellectual property, our ability to
compete could be impaired.
Our
long-term success largely depends on our ability to create and market
competitive products and to protect those creations. Our pending patent
applications, or those we may file in the future, may not result in patents
being issued. Until a patent is issued, the claims covered by the patent may be
narrowed or removed entirely and, therefore, we may not obtain adequate patent
protection. As a result, we may face unanticipated competition, or
conclude that without patent rights the risk of bringing products to the market
is too great, thus adversely affecting our operating results.
Because
of the extensive time required for the development, testing and regulatory
review of a product candidate, it is possible that before defibrotide can be
approved for sale and commercialized, our relevant patent rights may expire or
remain in force for only a short period following
commercialization. We have been issued a patent in the U.S. and
several other countries which covers the method for determining the biological
activity of defibrotide. This patent expires in 2022 in most
countries. We believe this to be an important patent
because the analytical release of a biological product like defibrotide is a key
step in confirming the purity and biological activity of the final
product. There may be no opportunities to extend this patent and
thereby extend exclusivity related to FDA and EMEA, in which case we could face
increased competition for defibrotide. Patent expiration could
adversely affect our ability to protect future product development and,
consequently, our operating results and financial position. In
addition, generic innovators may be able to circumvent this patent and design a
novel analytical method for determining the biological activity of
defibrotide. In this case, a generic defibrotide could potentially be
on the market once the relevant protections offered by our orphan designations
end.
We also
rely on trade secrets to protect our technology, especially where we do not
believe patent protection is appropriate or obtainable. However, trade secrets
are difficult to protect. While we use reasonable efforts to protect our trade
secrets, our employees, consultants, contractors, outside scientific
collaborators and other advisors may unintentionally or willfully disclose our
information to competitors. Enforcing a claim that a third party illegally
obtained and is using our trade secrets is expensive and time consuming, and the
outcome is unpredictable. In addition, courts outside the United States are
sometimes less willing to protect trade secrets. We intend to eventually license
or sell our products in China, South Korea and other countries which do not have
the same level of protection of intellectual property rights that exists in the
United Sates and Europe. Moreover, our competitors may independently develop
equivalent knowledge, methods and know-how.
Risks Related to Ownership of the
American Depositary Shares
Our
ADSs have generally had low trading volume, and its public trading price has
been volatile.
Between our initial public offering on
June 21, 2005 and December 31, 2008, the closing price of our American
Depositary Shares, or ADSs, have fluctuated between $.40 and $24.40 per share,
with an average daily trading volume for the twelve months ended December 31,
2008 of approximately 49,234 ADSs. The market may experience
significant price and volume fluctuations that are often unrelated to the
operating performance of individual companies.
In addition to general market
volatility, many factors may have a significant adverse effect on the market
price of our ADSs, including:
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continuing
operating losses, which we expect over the next several years as we
continue our development activities;
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announcements
of decisions made by regulators;
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results
of our preclinical studies and clinical trials;
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announcements
of improvements, new commercial products, failures of products, or
progress toward commercialization by our competitors or
peers;
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developments
concerning proprietary rights, including patent and litigation
matters;
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publicity
regarding actual or potential results with respect to product candidates
under development by us or by our competitors;
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regulatory
developments; and
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quarterly
fluctuations in our financial
results.
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We
may not remain listed on the Nasdaq Global Market.
Between our public offering and May
2006, our ADSs were listed on the American Stock Exchange. Since May
2006, our ADSs have been listed on the Nasdaq Global Market. The
Nasdaq Global Market sets forth various requirements that we must meet in order
for our ADSs to continue to be listed on the Nasdaq Global
Market. Violations of the continued listing requirements
include:
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if
the closing bid price of our ADSs drops below $1.00 for a period of 30
consecutive trading days;
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if
our stockholders’ equity falls below $10 million; or
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if
we fail to maintain a market value of publicly held securities of at least
$5 million for 30 consecutive trading
days.
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If we
violate any of these continued listing requirements, our ADSs could be delisted
from the Nasdaq Global Market. The delisting of our ADSs could have
negative results, including the potential loss of confidence by suppliers and
employees, the loss of institutional investor interest, and fewer business
development opportunities.
On October 16, 2008, given the
extraordinary market conditions, Nasdaq suspended the enforcement of the rules
requiring a minimum $1.00 closing bid price and requiring a minimum market value
of publicly held shares for the Nasdaq Global Market. Nasdaq extended
the minimum bid price and market value requirements on December 19, 2008 and
again on March 23, 2009, so that these requirements do not need to be met until
June 20, 2009. However, this suspension does not apply to the
stockholders’ equity requirement of $10 million.
As of
December 31, 2008, our stockholders’ equity was approximately $14.55
million. If we fail to meet the stockholders’ equity, or fail to meet
the minimum bid price and minimum market value requirements after the
suspension, we may be delisted from the Nasdaq Global Market.
Our
largest shareholders exercise significant control over us, which may make it
more difficult for you to elect or replace directors or management and approve
or reject mergers and other important corporate events.
Our
largest shareholder, FinSirton S.p.A., owned approximately 25% of our
outstanding ordinary shares at March 31, 2009. Dr. Laura Ferro, who is our
Chief Executive Officer and President and one of our directors, together with
members of her family controls FinSirton. In addition, Sigma-Tau
Finanziaria S.p.A., along with its affiliates, owns approximately 18% of our
outstanding ordinary shares at March 31, 2009. Marco Codella, who is
the chief financial officer of Sigma-Tau Finanziaria, serves as a member of our
board of directors. Moreover, we have licensed our rights in
defibrotide to treat severe VOD to Sigma-Tau Pharmaceuticals, Inc., a wholly
owned subsidiary of Sigma-Tau Finanziaria.
Both
FinSirton and Sigma-Tau Finanziaria may substantially control the outcome of all
matters requiring approval by our shareholders, including the election of
directors and the approval of mergers or other important corporate
events. They may exercise this ability in a manner that advances
their best interests and not necessarily yours. Also, the
concentration of our beneficial ownership may have the effect of delaying,
deterring or preventing a change in our control, or may discourage bids for the
ADSs or our ordinary shares at a premium over the market price of the ADSs. The
significant concentration of share ownership may adversely affect the trading
price of the ADSs due to investors’ perception that conflicts of interest may
exist or arise.
As
discussed in our risk factor entitled “Our shareholders can prevent us from
executing a financing by alleging that our board of directors acted with serious
irregularities when approving such financing, because the terms of such
financing could harm our company,” both FinSirton and Sigma-Tau Finanziaria own
enough of our ordinary shares to bring legal action against our board of
directors and may be able to prevent us from completing an important corporate
event, such as a financing.
If
a significant number of ADSs are sold into the market, the market price of the
ADSs could significantly decline, even if our business is doing
well.
Our
outstanding ordinary shares, ordinary shares issuable upon exercise of warrants
and ordinary shares issuable upon exercise of options are not subject to lock-up
agreements. We have filed registration statements registering the
resale of most of our outstanding ordinary shares and related ADSs and all of
our ordinary shares and related ADSs issuable upon exercise of our outstanding
warrants and options. Such registration and ultimate sale of the
securities in the markets may adversely affect the market for the
ADSs.
You
may not have the same voting rights as the holders of our ordinary shares and
may not receive voting materials in time to be able to exercise your right to
vote.
Except as
described in this annual report and in the deposit agreement for the ADSs with
our depositary, holders of the ADSs will not be able to exercise voting rights
attaching to the ordinary shares evidenced by the ADSs on an individual basis.
Holders of the ADSs will have the right to instruct the depositary as their
representative to exercise the rights attached to the ordinary shares
represented by the ADSs. You may not receive voting materials in time to
instruct the depositary to vote, and it is possible that you, or persons who
hold their ADSs through brokers, dealers or other third parties, will not have
the opportunity to exercise a right to vote.
You
may not be able to participate in rights offerings and may experience dilution
of your holdings as a result.
We may
from time to time distribute rights to our shareholders, including rights to
acquire our securities. Under our deposit agreement for the ADSs with our
depositary, the depositary will not offer those rights to ADS holders unless
both the rights and the underlying securities to be distributed to ADS holders
are either registered under the Securities Act of 1933, as amended, or exempt
from registration under the Securities Act with respect to all holders of ADSs.
We are under no obligation to file a registration statement with respect to any
such rights or underlying securities or to endeavor to cause such a registration
statement to be declared effective. In addition, we may not be able to take
advantage of any exemptions from registration under the Securities Act.
Accordingly, holders of our ADSs may be unable to participate in our rights
offerings and may experience dilution in their holdings as a
result.
You
may be subject to limitations on transfer of your ADSs.
Your ADSs
represented by the ADRs are transferable on the books of the depositary.
However, the depositary may close its transfer books at any time or from time to
time when it deems expedient in connection with the performance of its duties.
In addition, the depositary may refuse to deliver, transfer or register
transfers of ADSs generally when our books or the books of the depositary are
closed, or at any time if we or the depositary deem it advisable to do so
because of any requirement of law or of any government or governmental body, or
under any provision of the deposit agreement, or for any other
reason.
Risks
Relating to Being an Italian Corporation
The
process of seeking to raise additional funds is cumbersome, subject to the
verification of an Italian notary public as to compliance with our bylaws and
applicable law and may require prior approval of our shareholders at an
extraordinary meeting of shareholders.
We are
incorporated under the laws of the Republic of Italy. The principal laws and
regulations that apply to our operations, those of Italy and the European Union,
are different from those of the United States. In order to issue new equity or
debt securities convertible into equity, with some exceptions, we must increase
our authorized capital. In order to do so, our board must meet and resolve to
recommend to our shareholders that they approve an amendment to our bylaws to
increase our capital. Our shareholders must then approve that amendment to our
bylaws in an extraordinary meeting duly called, upon the favorable vote of the
required majority, which may change depending on whether the meeting is held on
a first or second call. These meetings take time to call. In addition, an
Italian notary public must verify the compliance of the capital increase with
our bylaws and applicable Italian law. Further, under Italian law, our existing
shareholders and any holders of convertible securities sometimes have preemptive
rights to acquire any such shares on the same terms as are approved,
concurrently with the new increase of the authorized capital pro rata based on
their percentage interests in our company. Also, our shareholders can authorize
the board of directors to increase our capital, but the board may exercise such
power for only five years. If the authorized capital is not issued by the end of
those five years, the authorized capital expires, and our board and shareholders
would need to meet again to authorize a new capital increase. Our shareholders
authorized our board of directors to increase our capital by up to €90 million
of par value for ordinary shares and €10 million for ordinary shares issuable
upon conversion of convertible bonds on April 28, 2006.
Italian
law provides that any interested person may, for a period of 180 days following
the filing of the shareholders’ resolution concerning the approval of the
capital increase with the Register of Companies, challenge such capital increase
if the increase was not in compliance with Italian law. If a shareholders’
meeting was not called to approve the capital increase, any interested person
may challenge the capital increase for a period of 90 days following the next
shareholders’ meeting. In addition, once our shareholders authorize a
capital increase, we must issue all of those authorized shares before the
shareholders may authorize a new capital increase, unless the shareholders vote
to cancel the previously authorized shares. These restrictions could limit our
ability to issue new equity or convertible debt securities on a timely
basis..
Our
shareholders can prevent us from executing a financing by alleging that our
board of directors acted with serious irregularities when approving such
financing, because the terms of such financing could harm our
company.
On August
12, 2008, Sigma Tau Finanziaria S.p.A., together with one of its affiliates,
filed a claim in the court of Como claiming that our board of directors acted
with serious irregularities in violation of their duties as directors when
approving a potential financing, because such financing could harm the
company. On August 18, 2008, the court of Como issued a temporary
order preventing us from moving forward with the potential
financing. While this claim was later dismissed for lack of damages,
it did, nonetheless, prevent the directors from approving a potential
financing. Any group of shareholders constituting at least 10% of our
outstanding ordinary shares could bring a similar action on a future board
resolution regarding a financing or other important corporate action, and an
Italian court could prevent the transaction from moving forward by issuing an
order to that effect.
We
are restricted under Italian law as to the amount of debt securities that we may
issue relative to our equity.
Italian
law provides that we may not issue debt securities for an amount exceeding twice
the amount of the sum of the aggregate par value of our ordinary shares (which
we call our capital), our legal reserve and any other disposable reserves
appearing on our latest Italian GAAP balance sheet approved by our shareholders.
The legal reserve is a reserve to which we allocate 5% of our Italian GAAP net
income each year until it equals at least 20% of our Italian GAAP
capital. One of the other reserves that we maintain on our balance
sheet is a “share premium reserve”, meaning amounts paid for our ordinary shares
in excess of the par value for such ordinary shares. At December 31, 2008, the
sum of our capital, legal reserves and other reserves on our unaudited Italian
GAAP balance sheet was €31.51 million. If we issue
debt securities in the future, until such debt securities are repaid in full, we
may not voluntarily reduce our capital or allocate our reserves (such as by
declaring dividends) if it results in the aggregate of the capital and reserves
being less than half of the outstanding amount of the debt. If our equity is
reduced by losses or otherwise such that the amount of the outstanding debt
securities is more than twice the amount of our equity, some legal scholars are
of the opinion that the ratio must be restored by a recapitalization of our
company. If our equity is reduced, we could recapitalize by issuing new shares
or having our shareholders contribute additional capital to our company,
although there can be no assurance that we would be able to find purchasers for
new shares or that any of our current shareholders would be willing to
contribute additional capital.
If
we suffer losses that reduce our capital to less than €120 thousand, we
would need to either recapitalize, change our form of entity or be
liquidated.
Italian
law requires us to reduce our shareholders’ equity and, in particular, our
capital (aggregate par value of our ordinary shares) to reflect on-going losses.
We are also required to maintain a minimum capital of €120 thousand. At
December 31, 2008, our Italian GAAP capital was approximately €14.96
million. If we suffer losses from operations that reduce our capital
to less than €120 thousand, then either we must increase our capital (which
we could do by issuing new shares or having our shareholders contribute
additional capital to our company) to at least €120 thousand or convert the form
of our company into an S.r.l., which has a lower capital requirement of
€10 thousand. If we did not take these steps, our company could
be liquidated.
We apply
our losses from operations against our legal reserves and capital. If our
capital is reduced for more than one-third as a result of losses, our board of
directors must call a shareholders’ meeting as soon as possible. The
shareholders must vote to elect to either reduce the legal reserves and capital
by the amount of the remaining losses, or to carry the losses forward for up to
one year. If the shareholders vote to elect to carry the losses forward up to
one year, and at the end of the year, the losses are still more than one-third
of the amount of the legal reserves and capital, then we must reduce our legal
reserves and capital by the amount of the losses.
Due
to the differences between Italian and U.S. law, the depositary (on your behalf)
may have fewer rights as a shareholder than you would if you were a shareholder
of a U.S. company.
We are
incorporated under the laws of the Republic of Italy. As a result, the rights
and obligations of our shareholders are governed by Italian law and our bylaws,
and are in some ways different from those that apply to U.S. corporations. Some
of these differences may result in the depositary (on your behalf) having fewer
rights as a shareholder than you would if you were a shareholder of a U.S.
corporation. We have presented a detailed comparison of the Italian
laws applicable to our company against Delaware law in “Item 10, Additional Information,
Comparison of Italian
and Delaware Corporate Laws.” We compared the Italian laws
applicable to our company against Delaware law because Delaware is the most
common state of incorporation for U.S. public companies.
Italian
labor laws could impair our flexibility to restructure our
business.
In Italy,
our employees are protected by various laws giving them, through local and
central works councils, rights of consultation with respect to specific matters
regarding their employers’ business and operations, including the downsizing or
closure of facilities and employee terminations. These laws and the collective
bargaining agreements to which we are subject could impair our flexibility if we
need to restructure our business.
FORWARD-LOOKING
STATEMENTS
This
annual report may contain forward-looking statements that involve substantial
risks and uncertainties regarding future events or our future performance. When
used in this annual report, the words “anticipate,” “believe,” “estimate,”
“may,” “intent,” “continue,” “will,” “plan,” “intend,” and “expect” and similar
expressions identify forward-looking statements. You should read statements that
contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
condition or state other “forward-looking” information. We believe that it is
important to communicate our future expectations to our investors. Although we
believe that our expectations reflected in any forward-looking statements are
reasonable, these expectations may not be achieved. The factors listed in the
section captioned “Risk Factors,” as well as any cautionary language included in
this annual report or incorporated by reference, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our ordinary shares, you should be aware that the occurrence of the
events described in the “Risk Factors” section and elsewhere in this annual
report could have a material adverse effect on our business, performance,
operating results and financial condition. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary statements set forth
in this annual report. Except as required by federal securities laws, we are
under no obligation to update any forward-looking statement, whether as a result
of new information, future events, or otherwise.
You should rely only on the information
contained in this annual report. We have not authorized anyone to provide you
with information different from that contained in this annual report. The
information contained in this annual report is accurate only as of the date of
this annual report.
We were
originally formed in 1993 as Pharma Research S.r.L., an Italian private limited
company. In December 2000, we changed from a private limited company
to an Italian corporation. In July 2001, we changed our name to
Gentium S.p.A. Under our current bylaws, the duration of our company will expire
on December 31, 2050. We are governed by the Italian Civil
Code.
We were
part of a group of pharmaceutical businesses founded in Italy in 1944 that has
been involved in the research and development of drugs derived from DNA and DNA
molecules since the 1970s. In 1986, our founding company received
approval to sell Prociclide and Noravid (both forms of defibrotide) in Italy to
treat deep vein thrombosis, and, in 1993, our founding company received approval
to manufacture and sell a form of defibrotide in Italy to both treat and prevent
all vascular disease with risk of thrombosis. We are currently
focused on the development of defibrotide to treat and prevent VOD in the United
States and Europe.
In June
2005, we consummated an initial public offering of our ADSs, which began trading
on the American Stock Exchange. In May 2006, we transitioned the
trading of our ADSs from the American Stock Exchange to the Nasdaq Global
Market.
We have
Italian, United States and international trademark rights in “Gentium,” United
States and European Union trademark rights in “Gentide,” international and
Italian trademark rights in “Oligotide,” and Italian trademark rights to “Pharma
Research” and “Dinelasi”. We also have a number of patent
registrations issued and pending in Italy, the United States and other
countries. This annual report also refers to brand names, trademarks, service
marks, and trade names of other companies and organizations, and these brand
names, trademarks, service marks, and trade names are the property of their
respective holders.
This
annual report contains market data and industry forecasts that were obtained
from industry publications and third parties.
Our
principal executive offices are located at Piazza XX Settembre 2, 22079
Villa Guardia (Como), Italy. Our telephone number is +39 031 385111.
Our website is located at www.gentium.it. The information contained
on our website is not part of this annual report. Our registered agent for
service of process in New York is CT Corporation System, located at
111 Eighth Avenue, 13th Floor, New York, New York 10011, telephone
number (212) 894-8940.
The
following table sets forth our capital expenditures for each year in the
three-year period ended December 31, 2008.
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For
the Year Ended December 31,
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(in
thousands)
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2006
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|
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2007
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2008
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|
Land
and buildings
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|
€ |
7 |
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|
€ |
162 |
|
|
€ |
4 |
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|
Plant
and machinery
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|
|
793 |
|
|
|
1,839 |
|
|
|
544 |
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Industrial
equipment
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|
|
254 |
|
|
|
582 |
|
|
|
179 |
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Other
|
|
|
108 |
|
|
|
90 |
|
|
|
13 |
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Leasehold
improvements
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|
|
46 |
|
|
|
249 |
|
|
|
27 |
|
|
Computer
Software
|
|
|
259 |
|
|
|
69 |
|
|
|
224 |
|
|
Construction
in progress
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|
|
46 |
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|
|
250 |
|
|
|
172 |
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Total
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€ |
1,513 |
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|
€ |
3,241 |
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|
€ |
1,163 |
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All of
these capital expenditures are in Italy. We are financing these
expenditures from offerings of our ordinary shares and loans from third
parties.
We are
building upon our extensive experience with defibrotide, a DNA based drug
derived from pig intestines, which our founding company discovered over
20 years ago. We are focused on development and manufacture of
defibrotide to treat and prevent a disease called hepatic veno-occlusive
disease, or VOD, a condition in which some of the veins in the liver are blocked
as a result of cancer treatments such as chemotherapy or radiation treatments
that are given prior to stem cell transplantation. Severe VOD is the
most extreme form of VOD and is associated with multiple-organ
failure. We are concluding a Phase III clinical trial of defibrotide
to treat severe VOD in the United States, Canada and Israel. In
addition, we are conducting a Phase II/III clinical trial of defibrotide in
Europe to prevent VOD in children.
A
historical study conducted by Harvard University’s Dana-Farber Cancer
Institution of 38 patients in three clinical centers indicated that, without
treatment, only approximately 11% of patients with severe VOD achieved a
complete response to the disorder within 100 days of their stem cell
transplantation, and only approximately 20% survived 100 days. By
comparison, results from a Phase II clinical trial conducted by Dana-Farber of
141 evaluable patients with severe VOD who were treated with defibrotide showed
a complete response rate after 100 days of approximately 46% and a survival rate
after 100 days of approximately 41%. However, both the historical
study and the Phase II clinical trial were based on very few patients and may
not accurately show either true complete response and survival rates without
treatment or the efficacy of defibrotide. We believe that there is no
drug approved by the FDA or European regulators to treat or prevent
VOD.
In
May 2003, the FDA designated defibrotide as an orphan drug for treatment of
VOD. In January 2007, the FDA designated defibrotide as an orphan
drug for prevention of VOD. In July 2004, EMEA granted us orphan
medicinal product designation for the use of defibrotide to both treat and
prevent VOD.
Due to
the historically low complete response and survival rates and lack of treatments
for VOD, we believe there is an immediate need for a drug to treat and prevent
VOD. The FDA has a “fast track” designation program which is designed to
facilitate the development and expedite their review of new drugs that are
intended to treat serious or life-threatening conditions and that demonstrate
the potential to address unmet medical needs. The FDA has designated defibrotide
to treat severe VOD as a fast track product. The FDA approval process
for defibrotide for this use remains dependent upon the successful completion a
clinical trial to treat severe VOD.
We do not
believe that our current Phase III clinical trial to treat severe VOD will
provide sufficient data to obtain regulatory approval in the United States or
Europe; however we do expect to utilize this data as supportive data for future
clinical trials. In addition, we believe that positive data from our
current Phase II/III clinical trial in Europe to prevent VOD in children could
be considered for contingent regulatory approval in Europe. We need
to raise additional funds through debt and/or equity financings, or enter into
licensing or similar collaborative arrangements, or both, in addition to the
limited cash flow we generate from operations, to complete the development of
defibrotide to treat and prevent VOD.
We
manufacture defibrotide, calcium heparin, sodium heparin and sulglicotide at our
manufacturing facility near Como, Italy, and we lease a facility from one of our
affiliates, Sirton, to manufacture urokinase. These products are
active pharmaceutical ingredients used to make other drugs. Almost
all of our revenues during the past three years have come from sales of these
products to Sirton. Our revenues from the sales of these products to
date have been generated primarily in Italy and, to a small degree, in South
Korea and amounted to €4.1 million, €5.1 million and €5.4 million in 2006, 2007
and 2008, respectively. However, as discussed in our financial
statements contained in this report, in 2008, we have not been able to recognize
revenue from Sirton due to doubt concerning Sirton’s ability to pay its
receivable.
Our
strategy is to obtain regulatory approval for defibrotide to treat and prevent
veno-occlusive disease. Since 2004, we have spent more than €10
million on upgrades to our facilities that we believe will facilitate the FDA
and European regulatory approval process for defibrotide and enable our future
production. We plan to work with our existing license partner,
Sigma-Tau Pharmaceuticals, Inc., and are seeking additional license partners to
help with the development and commercialization of defibrotide. We
also are attempting to grow our active pharmaceutical ingredient, or API,
business through volume and price increases of sulglicotide, urokinase and
sodium heparin.
Market
Overview
Chemotherapy,
radiation therapy and hormone therapy treatments for cancer are used to target
and kill cancer cells. In some cases, the therapy treats the cancer directly; in
other cases, it is administered to prepare the patient for a stem cell or bone
marrow transplant, which treats cancer or other diseases. Unfortunately, these
therapies often have significant negative side effects, including damage to the
cells that line the blood vessel walls. The damage to these cells can lead to
various disorders of the vascular system. Some patients may not be able to
continue with cancer treatments because they develop these vascular system
complications; other patients considered at high risk of developing these
vascular system complications may not receive optimal cancer treatments or any
treatment at all.
One of
the disorders of the vascular system that can result from chemotherapy,
radiation therapy, hormone therapy and stem cell and bone marrow transplants is
VOD. These therapies can cause extensive damage to the cells that line the walls
of small veins in the liver. The body’s natural response is to swell or clot the
sites of injury, but this blocks or “occludes” the vein. This
blockage of the veins is called “Hepatic Veno-Occlusive Disease,” or
VOD. VOD can cause damage to the liver and, in its severe form, leads
to failure of the liver and other organs (multiple-organ failure), which usually
results in death. According to 2003 data from the International Bone
Marrow Transplant Registry and the European Bone Marrow Transplant Registry,
approximately 21,000 people receive bone marrow transplants, which are types of
stem cell transplants, each year in the United States. Based on our
review of more than 200 articles in the medical literature, we believe that
approximately 12% of patients who undergo stem cell transplants develop
VOD. According to a 1998 article in Blood magazine by Enric
Carreras et. al., approximately 28% of patients who develop VOD progress to
severe VOD. Based upon a historical study conducted by Dana-Farber at
three centers consisting of 38 patients, we believe that of the patients who
develop severe VOD, only approximately 11% achieve a complete response within
100 days after a stem cell transplantation and only approximately 20% survive
more than 100 days. VOD poses a severe risk to the victim’s health.
We believe that there are no FDA or EMEA approved treatments at this time for
VOD.
Strategy
Our
strategic objective is to obtain regulatory approval for defibrotide to treat
and prevent VOD. We plan to continue to work with our existing
license partner, Sigma-Tau Pharmaceuticals, Inc., for the development of
defibrotide and commercialization of defibrotide in the
Americas. Outside of the Americas, we are seeking additional license
partners to help with the development and commercialization of
defibrotide. We also are attempting to grow our API business through
volume and price increases of sulglicotide, urokinase and sodium
heparin.
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Obtain regulatory approval to use
defibrotide to treat and prevent VOD. Gentium, as well as
independent investigators, have run several studies showing the potential
efficacy and safety of defibrotide in the treatment and prevention of VOD (see
detail under “Product Candidate” section below). We have received
orphan status from both the FDA and EMEA for the use of defibrotide in both the
prevention and treatment of VOD. In addition, we have received fast
track designation for the use of defibrotide for the treatment of severe VOD
prior to stem cell transplantation. The approval of defibrotide for
either the treatment or prevention of VOD depends on the success of our ongoing
European Phase II/III clinical trial for the prevention of defibrotide in
children as well as other confirmatory trials which will likely be
required. We also plan to use the results of our current Phase III
clinical trial to treat severe VOD, which is in its final stages, as supportive
data. It is likely that both the FDA and EMEA will view the results
of treatment and prevention trials as supportive of one another, although the
exact regulatory approval may include only an indication of prevention,
treatment, or both.
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Increase our marketing capacity,
including the use of strategic partnerships. We have a strategic license
agreement with Sigma-Tau Pharmaceuticals, Inc. to market defibrotide to
treat VOD in North America, Central America and South America upon regulatory
approval and have granted Sigma-Tau Pharmaceuticals, Inc. a right of first
refusal in those territories with respect to offers made by third parties to
market defibrotide to prevent VOD. We intend to develop the capacity
to market defibrotide in other jurisdictions and/or pursue similar marketing
agreements with other strategic partners for Europe and Asia
Pacific.
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Growth of API
Business. We currently sell sulglicotide to Samil for use in
the South Korean market, urokinase to Crinos for the Italian market and, to a
small extent, sodium heparin for use in the Italian market. Our goal
is to maximize the utilization of our manufacturing facility and we are
exploring ways to increase capacity of heparin and sulglicotide. We
are also looking at re-negotiating our existing supply agreements to achieve
greater profitability and longer-term commitments.
Product
Candidate
The FDA’s
designation of a product candidate as an orphan drug means that if the FDA
approves our New Drug Application for that product candidate before approving a
New Drug Application filed by anyone else for that product candidate, we will
have limited market exclusivity for that product candidate for seven years from
the date of the FDA’s approval of our New Drug Application. If the FDA were to
approve a New Drug Application filed by someone else for a product candidate
prior to the FDA approving our New Drug Application for the product candidate,
our ability to market the product candidate would be restricted by their orphan
drug exclusivity. Similarly, the Commission of the European Communities
designation of a product candidate as an orphan medicinal product means that if
the European regulators grant us a marketing authorization for that product
candidate, we will have limited market exclusivity for that product candidate
for ten years after date of the approval. If the European regulators were to
grant a marketing authorization filed by someone else for a product candidate
prior to the European regulators granting a marketing authorization for the
product candidate, our ability to market the product candidate could be
restricted.
Defibrotide
to treat severe VOD
In
May 2003, the FDA designated defibrotide as an orphan drug to treat VOD. In
July 2004, the Commission of the European Communities designated
defibrotide to treat VOD as an orphan medicinal product, which is similar to
being designated an orphan drug by the FDA.
In 2000,
the British Journal of
Hematology published the results of a 40 patient “compassionate use”
study of defibrotide to treat VOD conducted in 19 centers in Europe from
December 1997 to June 1999. Twenty-two patients, or 55%, showed a complete
response. Nineteen patients, or 47%, survived more than 100 days
after stem cell transplantation. The publication indicated that four patients of
the 19 patients who survived more than 100 days subsequently died. Twenty-eight
patients were judged likely to die or had evidence of multiple-organ
failure. Ten of the 28 “poor risk” patients, or 36%, showed a
complete response within 100 days after stem cell transplantation, all of whom
also survived for at least 100 days. This publication stated
that defibrotide was generally safely administered with no significant
side-effects.
In 2002,
the results from 88 patients with severe VOD following stem cell transplants who
were treated with defibrotide from March 1995 to May 2001 were
published in Blood, the
Journal of the American Society of Hematology. This publication reported data on
19 patients treated under individual Investigational New Drug Applications and
on a subsequent 69 patient multi-center Phase I/II clinical trial that was
conducted under an Investigational New Drug Application filed by a Dana-Farber
investigator. The primary goal of the trial was the assessment of the potential
effectiveness of the drug and its side effects, if any. All patients in the
clinical trial received defibrotide on an emergency basis. This publication
stated that 32 patients, or 36%, showed a complete response within 100 days
after stem cell transplantation, and 31 patients, or 35%, of those patients
survived at least 100 days after stem cell transplantation with minimal
adverse side effects, primarily transient mild hypotension. Thirteen of those 31
patients who had survived more than 100 days had died by October 2001, the
last date for which survival information was available. No mortality from VOD or
other toxicity related to the cancer treatment was seen more than 134 days
after treatment with defibrotide, with the most common cause of later death
being relapse.
In 2004,
the results from 45 children and adolescents with VOD following stem cell
transplants who were treated with defibrotide were published in Bone Marrow
Transplantation. Twenty-two of the 45 patients had severe
VOD. Thirty-four of the 45 patients, or 76%, had a complete response
within 100 days after stem cell transplantation and 29 patients, or 64%,
survived at least 100 days after stem cell transplantation. Of the 22
patients with severe VOD, 11 patients, or 50%, had a complete response and 8
patients, or 36%, survived at least 100 days after stem cell
transplantation. The report stated that defibrotide was well
tolerated; about one-third of the patients had a form of coagulopathy, and
treatment was discontinued in two cases where a severe bleeding disorder was
observed, although the events could not be clearly attributed to
defibrotide.
The
Dana-Farber investigator also sponsored, under his Investigational New Drug
Application, a Phase II clinical trial in the United States of defibrotide which
enrolled 150 stem cell transplant patients with severe VOD, of whom 141 were
evaluable, at nine cancer centers. This trial was funded by us and
$525 thousand in grants from the orphan drug division of the FDA. The purpose of
this trial was to evaluate the effectiveness of this drug, including the effect
of the drug on the survival rate of patients with severe VOD, the effective
dosage and potential adverse side effects. The primary endpoint was complete
response, with survival after 100 days as a secondary endpoint. The
Dana-Farber investigator presented the results from this Phase II clinical trial
at the 47th Annual Meeting of the American Society of Hematology on December 12,
2005. Results show that of 141 patients evaluable for response, 65 patients, or
46%, showed a complete response within 100 days after stem cell transplantation
and 62 patients, or 41%, survived at least 100 days after stem cell
transplantation, with minimal adverse events. We do not have information about
the survival rate after 100 days.
We
started a historically controlled Phase III clinical trial in the United States,
Canada and Israel for this use in December 2005 in patients with severe
VOD. The primary endpoint is complete response within 100 days after
stem cell transplantation and the secondary endpoint is survival after 100
days. We do not believe this current Phase III clinical trial will
produce sufficient data to obtain regulatory approval in the United States or
Europe; however, we believe that the data can be used as supportive data if and
when we commence and complete another clinical trial of defibrotide to treat
severe VOD. As with our current Phase III trial to treat severe VOD,
we will sponsor and conduct any additional clinical trials under our own
Investigational New Drug Application that we submitted to the FDA in December
2003. Sponsoring and conducting the additional clinical trials under our own
Investigational New Drug Application will allow us to communicate directly with
the FDA regarding the development of this drug for marketing
approval.
We have
also instituted an expanded access program for patients diagnosed with severe VOD in the United States who are not eligible to participate in
or otherwise lack access to the Phase III clinical trial. Under an
expanded access program, the FDA allows early access to investigational drugs
that are being developed to treat serious diseases for which there is no
satisfactory alternative therapy. We decided to undertake this
expanded access program due to the large numbers of requests for compassionate
use Investigational New Drug Application received for the use of
defibrotide, and the corresponding burden that sites
and investigators have been undergoing to obtain institutional review board and
FDA approval for such compassionate use requests. We will collect
additional usage tolerability and safety data from these patients to
support our planned New Drug Application
for this use of defibrotide.
The FDA
has designated defibrotide to treat severe VOD occurring after stem cell
transplantation by means of injection as a fast track product. The FDA approval
process for defibrotide for this use depends upon a properly designed clinical
trial and coordination with our corporate partner, Sigma-Tau Finanziaria
S.p.A.
Defibrotide
to prevent VOD
We
believe there is a significant market opportunity for defibrotide to prevent VOD
for patients at risk of developing VOD. Based on our experience researching VOD,
we believe that many recipients of high doses of chemotherapy, radiation therapy
or hormone therapy or of therapies that prepare for stem cell transplants have
an elevated risk of developing VOD. In January 2007, the FDA
designated defibrotide as an orphan drug to prevent VOD. In July
2004, the Commission of European communities designated defibrotide to prevent
VOD, an orphan medicinal product, which is similar to being designated an orphan
drug by the FDA. We believe that there are no FDA or European
regulatory approved drugs to prevent VOD at this time.
In 2002,
the results of a study on defibrotide in patients at high risk of VOD were
published in Blood magazine. One of 57 patients who received
defibrotide as a preventative agent developed VOD. No patients
experienced significant bleeding.
In 2004,
results of a study on defibrotide in patients who received chemotherapy and stem
cell transplants were published in Blood
magazine. Eight of 44 patients, or 18%, who received defibrotide
developed VOD, of which three patients, or 7%, developed severe
VOD. By comparison, four of 16 control group patients, or 25%, who
received heparin instead of defibrotide, developed VOD, of which two, or 12.5%,
developed severe VOD. There were no serious adverse events attributed to the use
of defibrotide.
In 2006,
the results from a preliminary pilot clinical study in Switzerland by the
University Hospital of Geneva on defibrotide, in patients at high risk of VOD
was published in Blood
magazine. The results suggested that defibrotide may provide
effective and safe prevention against VOD. The study tested patients who
received stem cell transplants. None of the 157 successive transplant patients
who received defibrotide as a preventative agent developed VOD. By comparison,
10 of 52 patients who underwent transplants in the same center before the study
developed VOD, which was fatal in three cases. The study report indicated that
mild to moderate toxicity such as mild nausea, fever and abdominal cramps was
documented, although the report stated that it was difficult to determine
whether the toxicity was directly attributable to the defibrotide, the
chemotherapy that preceded the stem cell transplants or other drugs used during
the stem cell transplants. The study report did not indicate the number of
patients who experienced this toxicity.
In 2007,
the results of a study on defibrotide in patients who received stem cell
transplants, a majority of who received reduced intensity cancer treatments but
had other risk factors for VOD, were published in Bone Marrow Transplant
magazine. None of the 58 patients who received defibrotide as a
preventative agent developed VOD. No serious adverse events were
reported.
In 2007,
the results of a study on defibrotide in patients who received stem cell
transplants and had elevated risks for VOD were reported in Blood magazine. One of 39
evaluable patients who received defibrotide as a preventative agent developed
VOD. No serious adverse events were reported.
We are
co-sponsoring with the European Group for Blood and Marrow Transplantation, a
not-for-profit scientific society, a Phase II/III clinical trial in Europe and
Israel of defibrotide to prevent VOD in children. Unlike our Phase III treatment
trial in the United States, we have a randomized control group of patients who
will either receive defibrotide or no treatment.
Current
Products
Our
current products are all active pharmaceutical product ingredients used to make
other drugs. The principal market for most of these products is
Italy. We sell one of our active pharmaceutical products,
sugligotide, primarily to a company in South Korea. Our products
sales to South Korea have been 9.2%, 15%, and 49% of our total product sales for
the years 2006, 2007, and 2008, respectively. Our revenues from the
sales of all our current products were €4.1 million, €5.1 million, and €5.4
million in 2006, 2007, and 2008, respectively.
Prociclide
and Noravid
Historically,
we sold defibrotide as an active pharmaceutical ingredient to our affiliate,
Sirton, who then used the active pharmaceutical ingredient for defibrotide to
fill and finish the product into ampoule and capsule forms. Sirton
then sold these forms of defibrotide to Crinos S.p.A., a subsidiary of Stada
Arzneimittel AG. Crinos, pursuant to a distribution agreement entered
into with us, sold these products throughout Italy, under the trademarks
Prociclide and Noravid, to treat and prevent vascular disease with risk of
thrombosis.
In 2007,
we changed our relationship with Sirton, from customer to a contract
manufacturer, and sold the finished forms of Prociclide and Noravid to Crinos
directly. On December 31, 2008, the distribution agreement with
Crinos expired and, consistent with our overall strategy, we chose not to renew
this agreement and discontinued the manufacture of defibrotide to be finished
into Prociclide and Noravid. Accordingly, in November 2008, we
limited Sirton’s manufacturing of defibrotide to uses for our clinical trials
and compassionate use programs.
Sulglicotide
Sulglicotide
is developed from swine duodenum and appears to have ulcer healing and
gastrointestinal protective properties. We sell sulglicotide to Samil, a South
Korean company, for use in manufacturing a product of Samil’s in South
Korea.
Urokinase
Urokinase
is made from human urine and has the potential to dissolve fibrin clots and, as
such, is used to treat various vascular disorders such as deep vein thrombosis
and pulmonary embolisms. We sell urokinase to a
number of companies, including Crinos and Sirton.
Seasonality
Seasonality
does not affect our business, although the timing of manufacturer orders can
cause variability in sales.
Regulatory Matters
Overview
The
preclinical and clinical testing, manufacture, labeling, storage, distribution,
promotion, sale, import and export, reporting and record-keeping of our product
candidates are subject to extensive regulation by governmental authorities in
the United States, principally the FDA and corresponding state agencies, and
regulatory agencies in foreign countries.
Non-compliance
with applicable regulatory requirements can result in, among other things,
injunctions, seizure of products, total or partial suspension of product
manufacturing and marketing, failure of the government to grant approval,
withdrawal of marketing approvals, civil penalty actions and criminal
prosecution. Except as discussed below, we believe that we are in substantial
compliance in all material respects with each of the currently applicable laws,
rules and regulations mentioned in this section. During the most recent biannual
inspection of our manufacturing facility by the Italian Health Authority in
February 2007, the Italian Health Authority noted by way of observations certain
deficiencies in regard to the operation of our facility. We have
corrected all of the deficiencies. Also, a regional Italian
regulatory inspector, during an April 2005 inspection of our manufacturing
facility, requested that we install an exhaust vent on one of our machines. We
have installed this device. In order to obtain FDA approval for the sale of any
of our product candidates, the FDA must determine that this facility meets their
current good manufacturing practices, or GMP, including requirements for
equipment verification and validation of our manufacturing and cleaning
processes. The FDA has not yet inspected our facility, but since 2004 we spent
over €10 million in upgrades to our facility in anticipation of such an
inspection. We are not aware of any other situation that could be
characterized as an incidence of non-compliance in the last three
years.
United
States Regulatory Approval
FDA
regulations require us to undertake a long and rigorous process before any of
our product candidates may be marketed or sold in the United States. This
regulatory process typically includes the following general steps:
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our
performance of satisfactory preclinical laboratory and animal studies
under the FDA’s good laboratory practices
regulations;
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our
submission to and acceptance by the FDA of an IND which must become
effective before human clinical trials may begin in the United
States;
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obtaining the approval of independent Institutional Review Boards at each
clinical site to protect the welfare and rights of human subjects in
clinical trials;
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our
successful completion of a series of adequate and well-controlled human
clinical trials to establish the safety, purity, potency and effectiveness
of any product candidate for its intended
use;
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our
submission to, and review and approval by, the FDA of a marketing
application prior to any commercial sale or shipment of a product;
and
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development and demonstration of manufacturing processes which conform to
FDA-mandated current good manufacturing
practices.
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This
process requires a substantial amount of time and financial resources. In 2002,
the FDA announced a reorganization that has resulted in the shift of the
oversight and approval process for certain therapeutic biologic drugs and the
related staff from the Center for Biologics Evaluation and Research to the
Center for Drug Evaluation and Research. Our initial product candidate,
defibrotide to treat severe VOD, is being regulated through the
latter.
Preclinical
Testing
Preclinical
tests generally include laboratory evaluation of a product candidate, its
chemistry, formulation, stability and toxicity, as well as certain animal
studies to assess its potential safety and effectiveness. We must submit the
results of these preclinical tests, together with manufacturing information,
analytical data and the clinical trial protocol, to the FDA as part of an
Investigational New Drug Application, which must become effective before we may
begin any human clinical trials. An application automatically becomes effective
30 days after receipt by the FDA, unless the FDA, within this 30-day time
period, raises concerns or questions about the intended conduct of the trials
and imposes what is referred to as a clinical hold. If one or more of our
products is placed on clinical hold, we would be required to resolve any
outstanding issues to the satisfaction of the FDA before we could begin clinical
trials. Preclinical studies generally take several years to complete, and there
is no guarantee that an Investigational New Drug Application based on those
studies will become effective, allowing clinical testing to begin.
Clinical
Trials
In
addition to FDA review of an application, each clinical institution that desires
to participate in a proposed clinical trial must have the clinical protocol
reviewed and approved by an independent Institutional Review Board. The
independent Institutional Review Boards consider, among other things, ethical
factors, informed consent and the selection and safety of human subjects.
Clinical trials must also be conducted in accordance with the FDA’s good
clinical practices requirements. Prior to commencement of each
clinical trial, the sponsor must submit to the FDA a clinical plan, or protocol,
accompanied by the approval of the committee responsible for overseeing clinical
trials at one of the clinical trial sites. The FDA, and/or the Institutional
Review Board at each institution at which a clinical trial is being performed,
may order the temporary or permanent discontinuation of a clinical trial at any
time if it believes that the clinical trial is not being conducted in accordance
with FDA requirements or presents an unacceptable risk to the clinical trial
patients.
Human
clinical trials are typically conducted in three sequential phases that may
overlap, including the following:
Phase I
In Phase
I clinical trials, a product candidate is typically given to either healthy
people or patients with the medical condition for which the new drug is intended
to be used. The main purpose of the trial is to assess a product candidate’s
safety and the ability of the human body to tolerate the product candidate, and
may also assess the dosage, absorption, distribution, excretion and metabolism
of the product candidate.
Phase II
During
Phase II, a product candidate is given to a limited number of patients with the
disease or medical condition for which it is intended to be used in order
to:
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identify any possible adverse side effects and safety
risks;
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the preliminary or potential effectiveness of the product candidate for
the specific targeted disease or medical condition;
and
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dosage tolerance and determine the optimal dose for a Phase III
trial.
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Phase
III
If and
when one or more Phase II trials demonstrate that a specific dose or range of
doses of a product candidate is likely to be effective and has an acceptable
safety profile, one or more Phase III trials are generally undertaken to
demonstrate clinical effectiveness and to further test for safety in an expanded
patient population with the goal of evaluating the product’s efficacy and its
overall risk-benefit relationship of the product candidate. The successful
demonstration of clinical effectiveness and safety in one or more Phase III
trials is typically a prerequisite to the filing of an application for FDA
approval of a product candidate.
After
approval, the FDA may also require a Phase IV clinical trial to continue to
monitor the safety and effectiveness of the product candidate.
The
sponsor must submit to the FDA the results of the pre-clinical and clinical
trials, together with, among other things, detailed information on the
manufacturing and composition of the product, in the form of a New Drug
Application or a Biologics License Application. Once the submission has been
accepted for filing, the FDA has 180 days to review the application and
respond to the applicant. The review process is often significantly extended by
FDA requests for additional information or clarification.
Post-Approval
Regulations
If a
product candidate receives regulatory approval, the approval is typically
limited to specific clinical uses. Subsequent discovery of previously unknown
problems with a product may result in restrictions on its use or even complete
withdrawal of the product from the market. Any FDA-approved products
manufactured or distributed by us are subject to continuing regulation by the
FDA, including record-keeping requirements and reporting of adverse events or
experiences. Drug manufacturers and their subcontractors are required to
register their establishments with the FDA and state agencies, and are subject
to periodic inspections by the FDA and state agencies for compliance with
current good manufacturing practices, or GMPs, which impose rigorous procedural
and documentation requirements upon us and our contract manufacturers. Failure
to comply with these requirements may result in, among other things, total or
partial suspension of production activities, failure of the FDA to grant
approval for marketing, and withdrawal, suspension, or revocation of marketing
approvals.
If the
FDA approves one or more of our product candidates, we and our contract
manufacturers must provide certain updated safety and effectiveness information.
Product changes, as well as changes in the manufacturing process or facilities
where the manufacturing occurs or other post-approval changes, may necessitate
additional FDA review and approval. The labeling, advertising, promotion,
marketing and distribution of a drug or biologic product also must be in
compliance with FDA requirements which include, among others, standards and
regulations for direct-to-consumer advertising, communication of information
relating to off-label uses, industry sponsored scientific and educational
activities and promotional activities involving the Internet. The FDA has very
broad enforcement authority, and failure to abide by these regulations can
result in penalties, including the issuance of a warning letter directing a
company to correct deviations from regulatory standards and enforcement actions
that can include seizures, fines, injunctions and criminal
prosecution.
Fast
track and orphan drug designation
The FDA
has a “fast track” program that provides the potential for expedited review of
an application. However, there is no assurance that the FDA will, in fact,
accelerate the review process for a fast track product candidate. Fast track
status is provided only for new and novel therapies that are intended to treat
persons with life-threatening and severely debilitating diseases, where there is
a defined unmet medical need, especially where no satisfactory alternative
therapy exists or the new therapy is significantly superior to alternative
therapies. During the development of product candidates that qualify for this
status, the FDA may expedite consultations and reviews of these experimental
therapies. The FDA can base approval of a marketing application for a fast track
product on an effect on a clinical endpoint, or on a surrogate endpoint that is
reasonably likely to predict clinical benefit. The FDA may condition the
approval of an application for certain fast track products on additional
post-approval studies to validate the surrogate endpoint or confirm the effect
on the clinical endpoint. Fast track status also provides the potential for a
product candidate to have a “priority review.” A priority review allows for
portions of the application to be submitted to the FDA for review prior to the
completion of the entire application, which could result in a reduction in the
length of time it would otherwise take the FDA to complete its review of the
application. Fast track status may be revoked by the FDA at any time if the
clinical results of a trial fail to continue to support the assertion that the
respective product candidate has the potential to address an unmet medical need.
A product approved under a “fast track” designation is subject to expedited
withdrawal procedures and to enhanced scrutiny by the FDA of promotional
materials.
The FDA
may grant orphan drug status to drugs intended to treat a “rare disease or
condition,” which is generally a disease or condition that affects fewer than
200,000 individuals in the United States. If and when the FDA grants orphan drug
status, the generic name and trade name of the therapeutic agent and its
potential orphan use are disclosed publicly by the FDA. Aside from guidance
concerning the non-clinical laboratory studies and clinical investigations
necessary for approval of the application, orphan drug status does not convey
any advantage in, or shorten the duration of, the regulatory review and approval
process. The FDA may grant orphan drug designations to multiple competing
product candidates targeting the same uses. A product that has been designated
as an orphan drug that subsequently receives the first FDA approval for the
designated orphan use is entitled to orphan drug exclusivity, which means the
FDA may not approve any other applications to market the same drug for the same
indication, except in very limited circumstances, for seven years from the date
of FDA approval. Orphan drug status may also provide certain tax benefits.
Finally, the FDA may fund the development of orphan drugs through its grants
program for clinical studies.
The FDA
has designated defibrotide as an orphan drug both to treat VOD and to prevent
VOD and has provided funding for clinical studies for defibrotide to treat VOD.
The FDA has approved the Company’s application for “fast track” designation for
defibrotide to treat severe VOD occurring after stem cell transplantation by
means of injection. If our other product candidates meet the criteria, we may
also apply for orphan drug status and fast track status for such
products.
Market
Exclusivity
In
addition to orphan drug exclusivity, a product regulated by the FDA as a “new
drug” is potentially entitled to non-patent and/or patent exclusivity under the
Federal Food, Drug and Cosmetic Act, or FFDCA, against a third party obtaining
an abbreviated approval of a generic product during the exclusivity period. An
abbreviated approval allows an applicant to obtain FDA approval without
generating, or obtaining a right of reference to, the basic safety and
effectiveness data necessary to support the initial approval of the drug product
or active ingredient. In the case of a new chemical entity (an active ingredient
which has not been previously approved with respect to any drug product)
non-patent exclusivity precludes an applicant for abbreviated approval from
submitting an abbreviated application until five years after the approval of the
new chemical entity. In the case of any drug substance (active ingredient), drug
product (formulation and composition) and method of use patents listed with the
FDA, patent exclusivity under the FFDCA precludes FDA from granting effective
approval of an abbreviated application of a generic product until the relevant
patent(s) expire, unless the abbreviated applicant certifies that the relevant
listed patents are invalid, not infringed or unenforceable and the NDA/patent
holder does not bring an infringement action within 45 days of receipt of
notification of the certification or an infringement action is brought within
45 days and a court determines that the relevant patent(s) are invalid, not
infringed or unenforceable or 30 months have elapsed without a court
decision of infringement.
User
Fees
A New
Drug Application for a prescription drug product that has been designated as an
orphan drug is not subject to the payment of user fees to the FDA unless the
application includes an indication other than the orphan
indication.
A
supplement proposing to include a new indication for a designated orphan disease
or condition in an application is also not subject to a user fee if the drug has
been designated an orphan drug with regard to the indication proposed in such
supplement.
There is
no specific exemption for orphan drug products from annual product and
establishment fees. However, sponsors of orphan drugs can request a waiver of
such fees on hardship or other grounds.
HIPAA
Other
federal legislation may affect our ability to obtain certain health information
in conjunction with our research activities. The Health Insurance Portability
and Accountability Act of 1996, or HIPAA, mandates, among other things, the
adoption of standards designed to safeguard the privacy and security of
individually identifiable health information. In relevant part, the U.S.
Department of Health and Human Services, or HHS, has released two rules to date
mandating the use of new standards with respect to such health information. The
first rule imposes new standards relating to the privacy of individually
identifiable health information. These standards restrict the manner and
circumstances under which covered entities may use and disclose protected health
information so as to protect the privacy of that information. The second rule
released by HHS establishes minimum standards for the security of electronic
health information. While we do not believe we are directly regulated as a
covered entity under HIPAA, the HIPAA standards impose requirements on covered
entities conducting research activities regarding the use and disclosure of
individually identifiable health information collected in the course of
conducting the research. As a result, unless they meet these HIPAA requirements,
covered entities conducting clinical trials for us may not be able to share with
us any results from clinical trials that include such health
information.
Foreign
Regulatory Approval
Outside
of the United States, our ability to market our product candidates will also be
contingent upon our receiving marketing authorizations from the appropriate
foreign regulatory authorities whether or not FDA approval has been obtained.
The foreign regulatory approval process in most industrialized countries
generally includes risks that are similar with the FDA approval process we have
described herein. The requirements governing conduct of clinical trials and
marketing authorizations, and the time required to obtain requisite approvals
may vary widely from country to country and differ from that required for FDA
approval.
European
Union Regulatory Approval
Under the
current European Union regulatory system, applications for marketing
authorizations may be submitted either under a centralized or decentralized
procedure. The centralized procedure (which is compulsory for certain categories
of drugs) provides for the grant of a single marketing authorization that is
valid for all European Union member states. The decentralized procedure provides
for mutual recognition of national approval decisions. Under this procedure, the
holder of a national marketing authorization that is obtained in accordance with
the procedure and requirements applicable in the member state concerned may
submit an application to the remaining member states. Within 90 days of
receiving the applications and assessment report, each member state must decide
whether to recognize approval. The mutual recognition process results in
separate national marketing authorizations in the reference member state and
each concerned member state.
The centralized
procedure
An
applicant under the centralized procedure must be a person who is domiciled in
the European Union or an entity established in the European Union. The applicant
must file a preliminary request containing the information regarding the
product candidate, including its description and the location of the production
plant, as well as the payment of the application fees. The European Agency for
the Evaluation of Medicinal Products (a European Union statutory entity)
formally evaluates the preliminary request and indicates either an initial
approval to review a full application or a rejection. If the European Agency
indicates an initial approval to review a full application, the applicant must
submit the application to the European Agency. This application must indicate
certain specific information regarding the product candidate, including the
composition (quality and quantity) of all the substances contained in the
product, therapeutic indications and adverse events, modalities of use, the
results of physical, chemical, biological and microbiological tests,
pharmacological and toxicity tests, clinical tests, a description of production
and related control procedures, a summary of the characteristics of the product
as required by the European legislation and samples of labels and information to
consumers. The applicant must also file copies of marketing authorizations
obtained, applications filed and denials received for the same product in other
countries, and must prove that the manufacturer of the product candidate is duly
authorized to produce it in its country.
The
European Agency (through its internal Committee for Proprietary Medicinal
Products) examines the documents and information filed and may carry out
technical tests regarding the product, request information from the member state
concerned with regard to the manufacturer of the product candidate and, when it
deems necessary, inspect the manufacturing facility in order to verify that the
manufacturing facility is consistent with the specifications of the product
candidate, as indicated in the application.
The
Committee generates and submits its final opinion to the European Commission,
the member states and the applicant. The Commission then issues its decision,
which is binding on all member states. However, if the Commission approves the
application, member states still have authority to determine the pricing of the
product in their territories before it can be actually marketed.
The
European Agency may reject the application if the Agency decides that the
quality, safety and effectiveness of the product candidate have not been
adequately and sufficiently proved by the applicant, or if the information and
documents filed are incomplete, or where the labeling and packaging information
proposed by the applicant do not comply with the relevant European
rules.
The
European Agency has also established an accelerated evaluation procedure
applying to product candidates aimed at serious diseases or conditions for which
no suitable therapy exists, if it is possible to predict a substantial
beneficial effect for patients.
The
marketing authorization is valid for five years and may be renewed, upon
application, for further five year terms. After the issue of the authorization
the holder must constantly take into consideration scientific and technical
progress so that the product is manufactured and controlled in accordance with
scientific methods generally accepted.
We plan
to apply for approvals for our product candidates under the centralized
procedure. We believe that the centralized procedure will result in a quicker
approval of our product candidates than the decentralized procedure due to the
fact that we intend to market our product candidates in many European Union
member states, rather than just one.
The decentralized
procedure
The
decentralized procedure provides for mutual recognition of national approval
decisions. Under this procedure, the holder of a national marketing
authorization—obtained in accordance with the procedure and requirements
applicable in the member state concerned (see the description below for
Italy)—may submit an application to the remaining member states. Within
90 days of receiving the applications and assessment report, each member
state must decide whether to recognize approval. The mutual recognition process
results in separate national marketing authorizations in the reference member
state and each concerned member state.
An
application under the decentralized procedure begins with the applicant
obtaining a national marketing authorization. An example of the process for
obtaining a national marketing authorization in Italy is set forth below. The
applicant then submits an application for authorization in other member states
and the European Agency. If any of the member states refuses to recognize the
authorization by the original member state, the matter is deferred to
arbitration proceedings, unless the applicant withdraws its request in the
member state refusing recognition. The characteristics of the product in the new
applications must be identical to those approved in the original member
state.
Italian
Regulatory Approval
In order
to put a medicinal product on the Italian market it is necessary to obtain,
alternatively:
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an
authorization from the Italian Agency for the Evaluation of Medical
Products (“AIFA”) (which may be national or by mutual recognition);
or
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an
EU authorization granted by European Agency for the Evaluation of
Medicinal Products (EMEA).
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The
marketing authorization is required for all medicines (including generics,
homeopathic, radiopharmaceutical products). The procedure for the
mutual recognition applies when a product has been already authorized in a
member state of the European Union. Decentralized procedure applies
when a product is not yet authorized. During a decentralized
procedure, the evaluation process involves all the relevant member states of the
European Union, of which one member state is chosen to be the state to be
referenced for mutual recognition.
An
application for marketing authorization in Italy must be filed by the office of
AIFA by an applicant established in the European community. The
application must contain certain information, including, but not limited to,
composition (quality and quantity) of all the substances contained in the
product, therapeutic indications and adverse events, modalities of use, the
results of physical, chemical, biological and microbiological tests,
pharmacological and toxicity tests, pre-clinical tests and clinical trials, a
description of production and related control procedures and samples of labels
and information to consumers. For generics, a simplified procedure applies,
according to which the applicant is exempted from providing the results of
pre-clinical tests and clinical trials.
The AIFA
may grant or deny the national authorization after a review of the contents of
the application, both from a formal and substantial viewpoint. If an
authorization is granted, it is valid for an initial period of five years and,
upon application, may be renewed for subsequent five year terms. In
particular, the AIFA examines the quality, effectiveness and safety of the
product. The AIFA may also order further tests prior to granting or
denying the authorization regarding the suitability of the production and
control methods described in the application. The AIFA may reject the
authorization if the ordinary use of the drug has adverse events, the quality
and quantity of the ingredients of the drugs do not correspond to the data
indicated in the application, there is a lack, either total or partial, of
beneficial therapeutic effects or the information and the documents included in
the application do not comply with the requirements provided by
law. After the AIFA grants a national authorization, the AIFA may
temporarily suspend or revoke the authorization if the information disclosed in
the relevant application turns out to be incorrect, the drug no longer meets the
necessary quality, effectiveness or safety requirements, or adequate production
controls have not been carried out.
Clinical
Trials
Italy has
implemented European legislation regarding good practices in drug clinical
trials. As a result, clinical trials are now governed in great detail and
failure to comply with these rules means that the results of the trials will not
be taken into consideration in evaluating an application for a marketing
authorization.
Prior to
starting any clinical trial, the organizing and/or financing entity must obtain
the approval of the competent health authorities (which vary depending on the
type of drug concerned) and obtain the favorable opinion of the competent
Ethical Committee, an independent body. Good practice rules include the
following principles:
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the
predictable risks and inconveniences shall not outweigh the beneficial
effects for the person subject to the trials and for the other current and
future patients;
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the
person participating in the trials must have been duly informed of all the
relevant circumstances and in particular of the right to interrupt the
experimentation at any time without any prejudicial consequence, and must
have given consent after having been properly
informed;
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the
right of the participants to their physical and mental integrity, as well
as their right to privacy, shall be
respected;
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the
entity organizing the trial must have obtained adequate insurance coverage
for any damage that may derive to the participants because of the
trial;
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the
name of a person to be contacted for any information must be communicated
to the participant; and
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the
trial must be conducted by suitably qualified medical
personnel.
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The trial
must be constantly monitored, in particular with regard to serious adverse
events which are not envisaged in the approved clinical protocol. The principal
investigator managing the trial and the sponsor of the trial have information
and notification obligations regulated in detail by the relevant authorities. In
particular, whenever the safety of the participants is in danger due to
unexpected serious adverse events, the sponsor must promptly inform AIFA and the
Ethical Committee. Italian legislation provides sanctions (criminal
sanctions and administrative fines) in case of violation of specific good
practice rules.
Post-approval
issues
There are
many national legislative instruments (implementing European Union rules)
governing controls on drugs in the post-authorization phase. For instance, the
holder of the national marketing authorization must promptly record in detail
and notify any adverse reaction to the drug of which it becomes aware,
regardless of the country where the reaction occurs, also preparing periodic
update reports on these adverse events. For these and other purposes, the holder
of the authorization must hire and maintain in its organization a person expert
in the field and responsible for all drug controlling and reporting
activities.
Moreover,
any form of information and advertising aimed at promoting the sale of drugs is
governed by specific national legislation (also implementing European Union
rules), which provides for the requirements and limitations of advertising
messages in general, as well as of other particular promotional activities, such
as the organization of conferences regarding certain drugs and the distribution
of free samples.
The
export of drugs from Italy is not subject to authorization (except for plasma
and blood-related products), but the import into Italy from non-European Union
countries must be authorized by the Ministry of Health, on the basis of the
adequacy of the quality controls to be carried out on the imported
drugs.
Pediatric Investigation
Plan
The pediatric investigation plan, or
PIP, is a key element in the European pediatric regulations and came into effect
in January 2007. The PIP is a plan for defining the use of a
medicinal product across all age groups of the pediatric population and across
all indications. The pediatric committee, or PDCO, is a body within EMEA
responsible for overseeing the requirements of the pediatric regulation. The
PDCO may grant a waiver from using a medicinal product in certain (or all)
indications and/or certain (or all) pediatric age groups, and/or a deferral of
the start or completion of all or some of the studies in the PIP. If
a sponsor complies with a PIP agreed by PDCO, the sponsor may receive a
six-month extension on patents covering the product described in the plan, or if
the product has been designated an orphan drug by EMEA, an additional two years
of market exclusivity, even if a pediatric indication is not
approved.
European orphan drug
status
European
legislation provides for a particular procedure for the designation of medicinal
products as orphan drugs. Such designation may include incentives for
the research, development and marketing of these orphan drugs and, in case of a
subsequent successful application for a marketing authorization regarding the
same therapeutic indications, grants a substantial period of market
exclusivity.
A
medicinal product – at any stage of its development but in any case prior to the
filing of any application for the marketing authorization – may be designated as
an orphan drug if the person/entity that has applied for the designation can
establish that it is intended for the diagnosis, prevention or treatment of a
life-threatening or chronically debilitating condition affecting no more than
five persons out of every ten thousand persons in the European Union, or the
diagnosis, prevention or treatment of a life-threatening, seriously debilitating
or serious and chronic condition in the European Union and, without incentives,
it is unlikely that the marketing of the medicinal product within the European
Union would generate sufficient income to justify the necessary investments in
the relevant medicinal product. Moreover, the sponsor must prove that there is
no satisfactory method of diagnosis, prevention or treatment of the condition in
question that has been authorized in the European Union or, if such method
exists, that the medicinal product will be of significant benefit to those
affected by that condition.
In order
to obtain the designation of a medicinal product as an orphan drug, the sponsor
shall submit an application to the European Agency for the Evaluation of Medical
Products, which must describe the indication of the active ingredients of the
medicinal product, the proposed therapeutic indications and proof that the
criteria established by the relevant European legislation are met.
The
European Agency reviews the application and prepares a summary report to a
special Committee for Orphan Medicinal Products, which issues an opinion within
90 days of the receipt of the application. The European Commission must
adopt a decision within 30 days of the receipt of the committee’s opinion.
If the European Commission approves the application, the designated medicinal
product is entered in the European Register of Orphan Medicinal Products and the
product is eligible for incentives made available by the European Union and by
member states to support research into, and development and availability of,
orphan drugs.
After the
registration, the sponsor must submit to the European Agency an annual report on
the state of development of the designated orphan drug. A designated orphan drug
may be removed from the Register of Orphan Medicinal Products in three
cases:
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at
the request of the sponsor;
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if
it is established, before the market authorization is granted, that the
requirements provided for in the European orphan drug legislation are no
longer met; or
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at the end of the period of market exclusivity (as
explained below).
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Orphan
drug market exclusivity means that the European Union shall not, for a period of
10 years from the grant of the marketing authorization for an orphan drug,
accept any other application for a marketing authorization, grant a marketing
authorization or accept an application to extend an existing marketing
authorization, for the same product. This period, however, may be reduced to six
years if at the end of the fifth year it is established that the criteria laid
down in the legislation are no longer met by the orphan drug, or where the
available evidence shows that the orphan drug is sufficiently profitable, so
that market exclusivity is no longer justified.
However,
as an exception to orphan drug market exclusivity, a marketing authorization may
be granted for the same therapeutic indications to a similar medicinal product
if:
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the
holder of the marketing authorization for the orphan drug has given his
consent to the second
applicant;
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the
holder of the marketing authorization for the orphan drug is unable to
supply sufficient quantities of the latter;
or
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the
second applicant can establish in its application that the second
medicinal product, although similar to the authorized orphan drug, is
safer, more effective or otherwise clinically
superior.
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Raw
Materials
We
extract many of our products and product candidates from the DNA of pig
intestines through well-established processes used by others to manufacture many
other drugs. In particular, we extract defibrotide, calcium heparin and sodium
heparin from swine intestinal mucosa and sulglicotide from swine duodenum. In
2004, we entered into supply agreements with La.bu.nat. S.r.l. for La.bu.nat. to
supply us with the swine intestinal mucosa and swine duodenum we need to produce
defibrotide.
The
contract term of the swine intestinal mucosa supply agreement expires on
December 31, 2010, with automatically renewable three year periods, unless
either party notifies the other party in writing six months prior to the annual
date of termination. We must give written purchase orders to La.bu.nat at least
two months in advance of the date of delivery.
The
contract term of the swine duodenum supply agreement expires on December 31,
2010, with automatically renewable three year periods, unless either party
notifies the other party in writing six months prior to the annual date of
termination. We must give written purchase orders to La.bu.nat at least four
months in advance of the date of delivery.
While we
have no current arrangements with any other supplier of our critical raw
material, we believe there are suitable alternative sources of pig intestine.
The FDA and other regulatory bodies may evaluate La.bu.nat.’s or any other
supplier’s processing centers as part of approving our product candidates and
our ongoing production of our products.
Our other
product, urokinase, is derived from human urine, which is subject to similar
regulatory review. While we currently purchase the urine from only one supplier
of urine and do not have a fixed supply agreement with that supplier, we believe
there are suitable alternative sources of this material.
Historically, there has been no
significant price volatility for any of our raw materials. It is possible that
widespread illness or destruction of pigs could result in volatility of the
price of pig intestines.
Competition
Our
industry is highly competitive and characterized by rapid technological change.
Significant competitive factors in our industry include:
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controlling
the manufacturing costs;
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the
effectiveness and safety of
products;
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the
timing and scope of regulatory
approvals;
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the
willingness of private insurance companies and government sponsored health
care programs to reimburse patients or otherwise pay for the drugs and the
related treatments;
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the
availability of alternative treatments for the disorders as well as the
availability of alternatives to the treatments which cause or contribute
to these disorders (such as chemotherapy, radiation therapy, stem cell
transplants, etc.);
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the
ability to perform clinical trials, independently or with
others;
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intellectual
property and patent rights and their protection;
and
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sales
and marketing capabilities.
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We face
competition in both the development and marketing of our product candidates.
During development alternative treatments for similar or completely different
disorders may limit our ability to get participants or co-sponsors for clinical
trials with our product candidates. Any product candidates that we successfully
develop that are approved for sale by the FDA or similar regulatory authorities
in other countries may compete with products currently being used or that may
become available in the future. Many organizations, including large
pharmaceutical and biopharmaceutical companies, as well as academic and research
organizations and government agencies, may be interested in pursuing the
research and development of drug therapies that target the blood vessel wall.
Many of these organizations have substantially greater capital resources than we
have, and greater capabilities and resources for basic research, conducting
preclinical studies and clinical trials, regulatory affairs, manufacturing,
marketing and sales. As a result, our competitors may develop or license
products or other novel technologies that are more effective, safer or less
costly than our existing products or products that are being developed by us, or
may obtain regulatory approval for products before we do. Clinical development
by others may render our products or product candidates
noncompetitive.
While we
are unaware of any other products or product candidates that treat or prevent
VOD, we believe that other companies have products or are currently developing
products to treat some of the same disorders and diseases that our other product
candidates are designed to treat.
Our
statements above are based on our general knowledge of and familiarity with our
competitors.
Legal
Proceedings
In August 2008, a legal proceeding was
commenced against our Board of Directors and Board of Statutory Auditors in the
Court of Como (Italy) seeking to prevent a proposed financing transaction from
proceeding by alleging misconduct by our Board of Directors and Board of
Statutory Auditors. The action was brought by Sigma-Tau Finanziaria S.p.A. and a
related entity, which together with their affiliates beneficially hold
approximately 18% of our ordinary shares.
While the Court of Como initially issued
an interim measure ordering that the proposed transaction not proceed, on
October 2, 2008, the Court of Como issued a decision terminating this legal
proceeding, citing the lack of any damages, and vacated the interim order
previously issued by the Court.
Currently, we are not a party to or
engaged in any material legal proceedings.
We were part of a group of
pharmaceutical businesses founded in Italy in 1944 that has been involved in the
research and development of drugs derived from DNA and DNA molecules since the
1970’s. In 1993, FinSirton formed our company as Pharma Research S.r.L., an
Italian private limited company, to pursue research and development activities
of prospective pharmaceutical specialty products. FinSirton is our
largest shareholder, and is controlled by Dr. Laura Ferro, who is our Chief
Executive Officer and President and one of our directors, together with her
family. In December 2000, we changed from a private limited company to a
corporation and in July 2001 we changed our name to Gentium
S.p.A. Under our current bylaws, the duration of our company
will expire on December 31, 2050. We have no
subsidiaries.
Manufacturing
and Facilities
We own a
manufacturing facility near Como, Italy which, at December 31, 2008, is subject
to a mortgage securing repayment of an aggregate of €2.2 million of debt owed to
Banca Nazionale del Lavoro. The manufacturing facility is 2,350
square meters in size. In order to obtain FDA approval for the sale
of any of our product candidates, the FDA must determine that this facility
meets their current good manufacturing practices, or GMPs, including
requirements for equipment verification and validation of our manufacturing and
cleaning processes. The FDA has not yet inspected our facility, but since 2004
we have spent more than €10 million for upgrades to our facility in anticipation
of such an inspection.
We raised
the money to fund these improvements from our sale of our Series A notes and our
initial public offering, and we may also use some of the net proceeds of our
initial public offering and our October 2005 private placement, June 2006
private placement, February 2007 private placement, and any future financings to
pay for future improvements.
We
produce defibrotide, sulglicotide, calcium heparin and sodium heparin at this
facility. Defibrotide, calcium heparin and sodium heparin are produced
simultaneously. In 2006, we replaced a principal reactor in the defibrotide
production line and separated the defibrotide production line from the
sulglicotide line by installing an additional reactor. These
improvements allow us to produce both defibrotide and sulglicotide
simultaneously and to double our potential capacity to manufacture defibrotide
and sulglicotide.
We
typically operate our manufacturing facility on two eight hour shifts per day.
Our estimated current production, our production capacity and percentage of
utilization for defibrotide and calcium heparin for the fiscal year 2009 are set
forth below:
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Product
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Estimated
Current
Production
Levels
(kilograms/year)
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Maximum
Production
Capacity
With
Two
Eight
Hour Shifts
(kilograms/year)
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Percentage
of
Utilization
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Defibrotide
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0 |
% |
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4,400 |
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0%
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% |
Until
December 31, 2008, we manufactured defibrotide to be filled and finished and
sold under the trademarks Prociclide and Noravid to treat and prevent vascular
disease with risk of thrombosis in Italy. We have discontinued the manufacture
of defibrotide for this use; however, we will continue to manufacture
defibrotide to meet future demands and for clinical trial purposes.
Our
estimated current production, production capacity and percentage of utilization
for sulglicotide for the fiscal year 2009 are set forth below:
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Product
|
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Estimated
Current
Production
Level
(kilograms/year)
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Maximum
Production
Capacity
With
Two
Eight
Hour Shifts
(kilograms/year)
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Percentage
of
Utilization
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Sulglicotide
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4,800 |
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4,800 |
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100
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% |
Our
estimated current production, production capacity and percentage of utilization
for urokinase for the fiscal year 2009 are set forth below:
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Product
|
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Estimated
Current
Production
Level
(millions
of units/year)
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Maximum
Production
Capacity
With
One
Eight
Hour Shift
(millions
of units/year)
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Percentage
of
Utilization
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Urokinase
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37 |
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37 |
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100
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% |
Our
facility is subject to customary regulation by regional agencies regarding
worker health and safety, fire department, water, air, noise and environmental
pollution and protection by Azienda Sanitaria Locale and Agenzia Regionale
Prevenzione e Ambiente. We have engaged Lariana Depur, a consortium that
specializes in the treatment of waste water, to treat our waste water. We
monitor our waste water to control the levels of nitrogen, chlorides and
chemical oxygen before delivering the waste water to Lariana Depur for
additional treatment. We do not expect any difficulties in complying with these
regulations. Also, we installed two scrubbers to reduce the odors and chemicals
released into the air by the facility to comply with Italian
regulations.
The
environmental management system was certified under the UNI EN ISO 14001
Standard on April 20, 2007 and the EMAS certification was obtained on July 26,
2007. We defined our environmental policy to be in compliance with
current regulations on environmental protection, to provide for continuous
improvement of our manufacturing performance, to protect our employees’ health,
to protect the safety of people working at our location and to respect the
safety of people living close to our plant and the surrounding
community.
We lease
2,350 square meters of office and laboratory space from FinSirton. In
addition, we lease 100 square meters of laboratory and manufacturing space for
urokinase from Sirton.
None.
You
should read the following discussion together with the financial statements,
related notes and other financial information included elsewhere in this annual
report. This discussion may contain predictions, estimates and other
forward-looking statements that involve risks and uncertainties, including those
discussed under “Risk Factors” and elsewhere in this annual report. These risks
could cause our actual results to differ materially from any future performance
suggested below.
Overview
We are a biopharmaceutical company
focused on development and manufacture of defibrotide, a DNA based drug derived
from pig intestines, to treat and prevent a disease called hepatic
veno-occlusive disease, or VOD, a condition in which some of the veins in the
liver are blocked as a result of cancer treatments such as chemotherapy or
radiation treatments that are given prior to stem cell
transplantation. Severe VOD is the most extreme form of VOD and is
associated with multiple-organ failure. We are concluding a Phase III clinical
trial of defibrotide to treat severe VOD in the United States, Canada and
Israel, but do not believe that this current Phase III clinical trial will
produce sufficient data to obtain regulatory approval in the United States or
Europe; however we do expect to utilize this data as supportive data for future
clinical trials. We are also conducting a Phase II/III clinical trial
of defibrotide in Europe to prevent VOD in children, which we believe could
provide contingent regulatory approval in Europe upon positive
data. We are currently working on a revised strategy with our
commercial partner regarding the treatment indication of
defibrotide.
We have a
plant in Italy where we manufacture active pharmaceutical ingredients, which are
used to make the finished forms of various drugs. One of those active
pharmaceutical ingredients is defibrotide. The other active
pharmaceutical ingredients that we manufacture for sale are urokinase, calcium
heparin, sodium heparin and sulglicotide. We sell these other active
pharmaceutical ingredients to other companies to be made into various
drugs. All of the Company’s operating assets are located in
Italy.
Historically,
we sold defibrotide as an active pharmaceutical ingredient to our affiliate,
Sirton, who then filled and finished the defibrotide active pharmaceutical
ingredient into ampoule and capsule forms. Sirton then sold these
ampoules and capsules to Crinos S.p.A., a subsidiary of Stada Arzneimittel
AG. Crinos, pursuant to a distribution agreement entered into with
us, sold these products throughout Italy, under the trademarks Prociclide and
Noravid, to treat and prevent vascular disease with risk of thrombosis in
Italy.
In 2007,
we changed our relationship with Sirton, from customer to a contract
manufacturer, and sold the finished forms of Prociclide and Noravid to Crinos
directly. On December 31, 2008, the distribution agreement with
Crinos expired and, consistent with our overall strategy, we chose not to renew
this agreement and discontinued the manufacture of defibrotide to be finished
into Prociclide and Noravid. Accordingly, in November 2008, we
limited Sirton’s manufacturing of defibrotide to uses for clinical trials and
compassionate use programs. In addition to defibrotide, we
manufacture and sell urokinase, calcium heparin, sodium heparin and
sulglicotide, which are additional active pharmaceutical ingredients used to
make other drugs.
For each
of the five years ended December 31, 2008, the sale of defibrotide,
urokinase, calcium heparin, sodium heparin and sulglicotide to Sirton amounted
to approximately 92%, 97%, 92%, 53%, and 12%, respectively, of our total product
sales. The price of defibrotide to Sirton was based on comparable
sale prices in years prior to 2002 to unrelated third parties. The price for
urokinase, calcium heparin, sodium heparin and sulglicotide is based on
comparable market prices charged by other manufacturers.
Historically,
we have also generated revenue from research and development agreements with
co-development partners, from the sale of rights to our intellectual property,
and from licensing agreements. Our licensing agreements have included
up-front payments (some of which are paid based on achieving defined
milestones), reimbursement of research and development expenses, and royalties
from product sales in the licensed territories. Our revenues by type
are as described below:
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For
The Years Ended December 31,
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(in
thousands)
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2006
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2007
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2008
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Product
sales:
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|
|
|
|
|
|
|
|
|
|
Prociclide
and Noravid
|
|
€ |
2,316 |
|
|
€ |
2,756 |
|
|
€ |
1,728 |
|
|
Urokinase
|
|
|
1,271 |
|
|
|
1,461 |
|
|
|
844 |
|
|
Sulglicotide
|
|
|
375 |
|
|
|
764 |
|
|
|
2,671 |
|
|
Other
|
|
|
113 |
|
|
|
113 |
|
|
|
199 |
|
|
Total
product sales
|
|
|
4,075 |
|
|
|
5,094 |
|
|
|
5,443 |
|
|
Other
revenues
|
|
|
249 |
|
|
|
2,515 |
|
|
|
1,995 |
|
|
Total
revenue
|
|
€ |
4,324 |
|
|
€ |
7,609 |
|
|
€ |
7,438 |
|
Of our
product sales in the periods shown in the table above, all were sales in Italy
except for 7.5% during the year ended December 31, 2006, 13.4% during the year
ended December 31, 2007, and 49.1% during the year ended December 31, 2008,
which were sales of sulglicotide in South Korea. Substantially all of our other
revenue is the result of a cost sharing arrangement with Sigma-Tau
Pharmaceuticals, Inc., entered into in 2007, under which Sigma-Tau
Pharmaceuticals, Inc. agreed to reimburse us for 50% of certain costs incurred
in our ongoing phase III clinical trial of defibrotide to treat severe
VOD.
Our cost
of goods sold consists of material costs, direct labor and related benefits and
payroll burden, utilities, quality control expenses, depreciation of our
facility and other indirect costs of our facility. Cost of
goods sold include costs charged from Sirton for manufacturing activities
performed to finalize and package product distributed in the Italian market
under a distribution agreement with Crinos. We expect our cost of
goods sold to decrease in 2009 due to the expiration and non-renewal of our
distribution agreement with Crinos.
We expect
to continue to incur net losses as we continue the development of defibrotide,
apply for regulatory approvals and expand our operations. We have not generated any revenues from
defibrotide, other than for limited use in Italy, and are dependent upon significant
financing or alternative funding to provide the working capital necessary to
execute our business plan. We currently anticipate that our cash
and cash equivalents as of the date of this report are sufficient to meet our
anticipated working capital and operating needs through August of
2009. Accordingly, if we do not obtain sufficient funding in the near
future, we will not be able to continue as
a going concern.
As of
December 31, 2008, substantially all of our cash and cash equivalents were held
in accounts at financial institutions located in the Republic of Italy and the
United States, that we believe are of acceptable credit quality. We
invest our cash in liquid instruments that meet high credit quality standards
and generally mature within three months of purchase. We are exposed
to exchange rate risk with respect to certain of our cash balances that are
denominated in U.S. dollars. As of December 31, 2008, we held a cash
balance of $5.49 million that was denominated in U.S. dollars. This
dollar-based cash balance is available to be used for future purchases and other
liquidity requirements that may be denominated in such currency. We
are exposed to unfavorable and potentially volatile fluctuations of the U.S.
dollar against the Euro (our functional currency).
Any
increase (decrease) in the value of the U.S. dollar against the Euro will result
in unrealized foreign currency remeasurement losses (gains) with respect to the
Euro. The value of the Euro against the U.S. dollar and other
currencies may fluctuate and is affected by, among other things, changes in
political and economic conditions. Any change in the value of the
Euro relative to other currencies that we transact business with in the future
could materially and adversely affect our cash flows, revenues and financial
condition. To the extent we hold assets denominated in U.S. dollars,
any appreciation of the Euro against the U.S. dollar could result in a non-cash
charge to our operating results and a reduction in the value of our U.S. dollar
denominated assets upon remeasurement.
In
addition, we are exposed to foreign currency risks to the extent that we enter
into transactions denominated in currencies other than our functional currency,
such as investments, programming costs and accounts payable. Changes
in exchange rates with respect to these items will result in unrealized or
realized foreign currency transaction gains and losses upon settlement of the
transactions.
We are
exposed to changes in interest rates primarily as a result of our
borrowings. Our primary exposure to variable rate debt is through the
EURIBOR and we have entered into interest rate cap agreement to manage exposure
to movements in interest rates. Interest rate cap agreements lock in
a maximum interest rate should variable rates rise, but enable us to benefit
from lower interest rates.
Critical
Accounting Policies and Estimates
Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates, judgments and assumptions that
affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosures. We base our estimates and judgments on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results could differ from those
estimates.
We
believe the following policies to be critical to understand our financial
conditions and results of operations because they require us to make estimates,
assumptions and judgments about matters that are inherently
uncertain.
Revenue
Recognition
Our
primary source of revenue was from the sale of products and from collaborative
arrangements. We recognize revenue from product sales when ownership of the
product is transferred to and accepted by the customer, the sales price is fixed
or determinable, and collectibility is reasonably assured. Provisions for
returns and other adjustments related to sales are provided in the same period
the related sales are recorded on the basis of historical rates of return.
Historically, our returns have been insignificant.
Collaborative
arrangements generally contemplate that our technology or intellectual property
will be utilized to commercialize or produce certain pharmaceutical products and
that we will receive certain revenues pursuant to these agreements. We recognize
revenue from our collaborative arrangements according to Staff Accounting
Bulletin No. 104, “Revenue Recognition.” When necessary, we divide such
agreements into separate units of accounting as required by Emerging Issues Task
Force No. 00-21, “Revenue Arrangements with Multiple Deliverables” before
using the applicable revenue recognition policy for each element within the
agreement. Accordingly, we recognize revenues on performance milestones only
when we have met specific targets or milestones as set forth in the contracts.
We defer and recognize as revenue non-refundable payments received in advance
that are related to the future performance over the life of the related research
project. We recognize reimbursements to fund research and development efforts as
the qualified expenditures are made. Finally, royalty revenues are recognized
when earned when the applicable sales are made.
Inventories
We state
inventories at the lower of cost or market, determining cost on an average cost
basis. We periodically review inventories and reduce items that we consider
outdated or obsolete to their estimated net realizable value. We estimate
reserves for excess and obsolete inventories based on inventory levels on hand,
future purchase commitments, and current and forecast product demand. Our
reserve level and as a result our overall profitability, is therefore subject to
our ability to reasonably forecast future sales levels versus quantities on hand
and existing purchase commitments. Forecasting of demand and resource planning
are subject to extensive assumptions that we must make regarding, among other
variables, expected market changes, overall demand, pricing incentives and raw
material availability. Significant changes in these estimates could indicate
that inventory levels are excessive, which would require us to reduce
inventories to their estimated net realizable value.
In the
highly regulated industry in which we operate, raw materials, work in progress
and finished goods inventories have expiration dates that must be factored into
our judgments about the recoverability of inventory cost. Additionally, if our
estimate of a product’s demand and pricing is such that we may not fully recover
the cost of inventory, we must consider that in our judgment as well. In the
context of reflecting inventory at the lower of cost or market, we will record
an inventory reserve as soon as a need for such a reduction in net realizable
value is determined.
Impairment
of Long-lived Assets
Our
long-lived assets consist primarily of product rights and property and
equipment. In accordance with Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
(SFAS 144), we evaluate our ability to recover the carrying value of long-lived
assets used in our business, considering changes in the business environment or
other facts and circumstances that suggest their value may be
impaired.
If, based
on the preceding discussion, our management has concluded that impairment
indicators exist, we will initially review by assessing the undiscounted cash
flows expected to be derived from the asset or group of assets, comparing the
lowest level of total expected undiscounted cash flow to the carrying value. If
the carrying value of the asset or the group of assets exceeds the sum of the
undiscounted cash flows, impairment is considered to exist. An impairment charge
is assessed by comparing the assets’ fair value to the carrying value. Fair
value can be calculated by a number of different approaches, including
discounted cash flow, comparables, market valuations or quoted market prices.
The process and steps required to assess the possible impairments of assets,
including the identification of possible impairment indicators, assessing
undiscounted cash flows, selecting the appropriate discount rate, the
calculation of the weighted average cost of capital and the discounts or
premiums inherent in market prices requires a substantial amount of management
discretion and judgment. If actual results differ from these estimates, or if we
adjust these estimates in future periods, operating results could be
significantly affected.
Research
and Development Expenses
We have
several activities, and their related costs, that are included in research and
development expenses. These activities include primarily salaries and benefits
of our direct employees, employee stock based compensation expense, facility
costs, overhead costs, clinical trial costs and related trial product
manufacturing costs, contracted services and subcontractor costs. Clinical trial
costs include costs associated with contract research organizations. The
billings that we receive from contract research organizations for services
rendered may not be received for several months following the service. We accrue
the estimated costs of the contract research organizations related services
based on our estimate of management fees, site management and monitoring costs
and data management costs. Our research and development department is in
continuous communication with our contract research organizations to assess both
their progress on the underlying study and the reasonableness of their cost
estimates. Differences between estimated trial costs and actual have not been
material to date, and any changes have been made when they become known. Under
this policy, research and development expense can vary due to accrual
adjustments related to the underlying clinical trials and the expenses incurred
by the contract research organizations. At December 31, 2008, we had
€1,981 million of
future payables under outstanding contracts with various contract research
organizations that are not revocable. Most of these contracts are on
a cost plus or actual cost basis.
Stock-Based
Compensation
Under the
provisions of Statement of Financial Accounting Standards (FAS) No. 123(R),
“Share-Based Payment”
(FAS 123R), employee stock-based compensation is estimated at the date of grant
based on the employee stock award’s fair value using the Black-Scholes
option-pricing model and is recognized as expense ratably over the requisite
service period, which is generally the vesting period, in a manner similar to
other forms of compensation paid to employees. The Black-Scholes option-pricing
model requires the use of certain subjective assumptions. The most significant
of these assumptions are our estimates of the expected volatility of the market
price of our stock, the expected term of the award and the expected forfeiture
rate. When establishing an estimate of the expected term of an award, we
consider the vesting period of the award, our recent historical experience of
employee stock option exercise, the expected volatility and a comparison to
relevant peer group data.
We review
our assumptions periodically and, as a result, we may change our assumptions
used to value share based awards granted in future periods. Such
changes may lead to a significant change in the expense we recognize in
connection with share based payments.
In using
the option pricing model that we have selected, changes in the underlying
assumptions have the following effect on the resulting fair value
output:
|
An
increase to the:
|
|
Results
in a fair value estimate that is:
|
|
Price
of the underlying share
|
|
Higher
|
|
Exercise
price of option
|
|
Lower
|
|
Expected
volatility of stock
|
|
Higher
|
|
Risk-free
interest rate
|
|
Higher
|
|
Expected
term of option
|
|
Higher
|
In our
current valuation, we consider the volatility factor to be an important factor
in determining the fair value of the options granted. We have used 60.65% factor
based on what we believe is a representative sample of similar biopharmaceutical
companies. However,
this sample is not perfect as it omits, for example, Italian companies, due to
the fact that there are a limited number of companies such as ourselves publicly
traded in the U.S. market. Significant changes to these estimates could have a
material impact on the results of our operations.
Recent
Accounting Pronouncements
In December 2007, the FASB ratified the
final consensuses in
Emerging Issues Task Force (EITF) Issue No. 07-1, “Accounting for
Collaborative Arrangements” (EITF 07-1), which provides guidance
for the income statement presentation of transactions with third parties and
payments between parties to
a collaborative arrangement, along with disclosure of the nature and purpose of
the arrangement. EITF 07-1 is effective for us beginning January 1,
2009. We do not expect this pronouncement to have a material effect
on our financial statements.
Effective January 1, 2008 we implemented SFAS No.
157, “Fair Value
Measurements” (FAS 157), for our financial assets and liabilities
that are re-measured and reported at fair value at each reporting period, and
non-financial assets and liabilities that are re-measured and reported at fair value at least
annually. In accordance with the provisions of FSP FAS 157-2, Effective
Date of FASB Statement No. 157, we deferred the implementation of
SFAS 157 as it relates to our non-financial assets and non-financial
liabilities that are recognized and disclosed at
fair value in the financial statements on a nonrecurring basis until
January 1, 2009. We do
not expect this pronouncement to have a material effect on our financial
statements.
In March 2008, the FASB issued SFAS
No. 161, Disclosure About
Derivate Instruments and Hedging Activities- an amendment of SFAS Statement No.
133, which enhances the
disclosure requirements for derivates instruments and hedging activities. This
standard is effective for us beginning January 1, 2009. We do not expect this
pronouncement to have a material effect on our financial
statements.
Results of Operations
The
following tables set forth our results of operations:
|
|
|
For
The Years Ended December 31,
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Amounts
in thousands except share and per share data
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Product
sales to related party
|
|
€ |
3,754 |
|
|
€ |
2,704 |
|
|
€ |
651 |
|
|
Product
sales to third
parties
|
|
|
321 |
|
|
|
2,390 |
|
|
|
4,792 |
|
|
Total
product
sales
|
|
|
4,075 |
|
|
|
5,094 |
|
|
|
5,443 |
|
|
Other
revenues
|
|
|
249 |
|
|
|
2,515 |
|
|
|
1,995 |
|
|
Total
Revenues
|
|
|
4,324 |
|
|
|
7,609 |
|
|
|
7,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods
sold
|
|
|
3,092 |
|
|
|
4,584 |
|
|
|
5,596 |
|
|
Research
and
development
|
|
|
8,927 |
|
|
|
14,497 |
|
|
|
9,569 |
|
|
General
and
administrative
|
|
|
5,421 |
|
|
|
6,279 |
|
|
|
7,668 |
|
|
Depreciation
and
amortization
|
|
|
261 |
|
|
|
725 |
|
|
|
998 |
|
|
Charges
from related
parties
|
|
|
854 |
|
|
|
748 |
|
|
|
537 |
|
|
Write-down
of
assets
|
|
|
- |
|
|
|
13,740 |
|
|
|
3,403 |
|
|
Total
operating costs and
expenses:
|
|
|
18,555 |
|
|
|
40,573 |
|
|
|
27,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(14,231 |
) |
|
|
(32,964 |
) |
|
|
(20,333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency exchange gain/(loss), net
|
|
|
(627 |
) |
|
|
(4,001 |
) |
|
|
173 |
|
|
Interest
income,
net
|
|
|
490 |
|
|
|
1,357 |
|
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income tax
expense
|
|
|
(14,368 |
) |
|
|
(35,608 |
) |
|
|
(19,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
€ |
(14,368 |
) |
|
€ |
(35,608 |
) |
|
€ |
(19,904 |
) |
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
|
(1.33 |
) |
|
|
(2.52 |
) |
|
|
(1.33 |
) |
|
Weighted
average shares used to compute basic and
diluted net loss per share
|
|
|
10,808,890 |
|
|
|
14,105,128 |
|
|
|
14,956,263 |
|
Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007
Product
sales.
Our
product sales were €5.44 million for 2008 compared to €5.09 million for 2007, an
increase of €0.35 million or 7%. The increase was primarily due to an increase
in demand for our products from our customers. Sales to a related
party, Sirton, for the year ended December 31, 2007 and 2008 represented 53% and
12% of the total product sales, respectively. The decrease in sales to a related
party is primarily due to the fact that we did not recognize product sales to a
related party for sale transactions consummated after March 2008, amounting to
€1.08 million, because one of the criteria stated by SAB 104 (“collectibility is
reasonably assured”) was not met. In addition, in contemplation of
the expiration of our distribution agreement with Crinos, we stopped selling
Prociclide and Noravid as a finished product to Crinos during the three month
period ended December 31, 2008. Sales to third parties increased to
€4.79 million for the year ended December 31, 2008 due to higher sales volume of
sulglicotide. Sulglicotide is used by a South Korean manufacturer to
produce a finished product.
Other
revenues
Our other
revenues were €1.99 million for 2008 compared to €2.51 million for 2007.
Fluctuation versus the prior-year period is primarily due to timing on the
recognition of reimbursement from Sigma Tau, under a cost sharing arrangement
entered into during the third quarter of 2007, of certain costs incurred in our
ongoing phase III clinical trial of defibrotide to treat severe
VOD.
Cost
of goods sold.
Our cost
of goods sold was €5.60 million for 2008 compared to €4.58 million in
2007. Cost of goods sold as percent of product sales was 103% in 2008
compared to 90% in 2007. The decrease in gross margin was primarily due to the
non-recognition of product sales to a related party, Sirton, for sale
transactions consummated after March 2008. The Company did not recognize product
sales due to Sirton’s poor financial condition, which caused concerns over the
collectibility of such receivables.
If we
would have recognized such revenue, cost of goods sold as a percentage of
product sales would have been 86% for 2008 compared to 90% for
2007. The increase in gross margin would have been primarily due to
change in product mix.
Research
and development expenses.
We
incurred research and development expenses of €9.57 million in 2008 compared to
€14.50 million for 2007. Research and development expenses are net of
€0.79 million government grants accrued as a reduction of expense. Excluding
such grants, research and development expense would have been €10.36 million and
€14.50 million in 2008 and 2007, respectively. Research and development expenses
were primarily for the development of Defibrotide to treat and prevent VOD. The
decrease from the comparable period in 2007 is the timing of performance of
clinical research organizations and regulatory activities. Also contributing to
the research and development expenses was stock based compensation of €0.38
million in 2008 compared to €0.44 million in 2007.
General
and administrative expenses.
Our
general and administrative expenses were €7.67 million in 2008 compared to €6.28
million in 2007. The 2008 general and administrative expenses reflect the
establishment of an allowance for doubtful accounts of €1.78
million. General and administrative expenses include general
corporate expenses, legal and other professional fees and stock based
compensation expense of €1.50 million in 2008 compared to €1.36 million in
2007.
Depreciation
and amortization expense.
Depreciation
and amortization expense was €1.00 million in 2008 compared to €0.73 million in
2007. Depreciation expense excludes depreciation of our manufacturing
facilities included in our cost of goods sold.
Write-down
of assets
We
recorded an impairment of €3.40 million in 2008 compared to €13.74 million in
2007. Write-down of
assets include the write-down of acquired trademarks for Prociclide and Noravid
(both forms of defibrotide), the Italian marketing authorizations for Prociclide
and Noravid, inventory and the Company’s patents. The trademarks and
marketing authorizations for Prociclide and Noravid have been written-down due
to the expiration and non-renewal by the Company of the distribution agreement
with Crinos S.p.A., which distributed Prociclide and Noravid in Italy to treat
and prevent vascular disease with risk of thrombosis. Because the
Company has decided to discontinue the distribution of Prociclide and
Noravid of defibrotide, doubt has been raised concerning the recoverability
of future cash flows expected to be derived from these
assets. Therefore, the Company has impaired €1.70 million of the
remaining net book value of the trademarks and Italian marketing authorizations
for Prociclide and Noravid. In addition, the Company wrote down €1.23
million of the remaining book value of semi-finished and finished Prociclide and
Noravid in our inventory, including such products expected to be returned by
Crinos, as these products are no longer saleable. At December 31,
2008, we wrote down the remaining carrying value of the Company’s patents
amounting to €0.48 million, because there was no expected future cash flows to
support the amounts to be derived over the remaining useful life of the
patents.
Foreign
currency exchange gain (loss), net
Our
foreign currency exchange gain (loss) is primarily due to remeasurement at
December 31, 2008 of U.S. dollar cash balances. The positive result
between 2007 and 2008 is due to a more favorable exchange rate in 2008 and a
lower cash balance in 2008 versus 2007.
Interest income, net.
Interest
income, net amounted to €0.26 million and €1.36 million in 2008 and 2007,
respectively. Gross interest income amounted to €0.59 million and €1.67 million
in 2008 and 2007, respectively, a decrease of €1.08 million. The decrease is a
result of a lower amount of invested funds in the 2008 period and decrease in
interest rates. Interest expense totaled €0.33 million and €0.32
million in 2008 and 2007, respectively, an increase of €0.01 million
attributable to an fluctuation in interest rate.
Net
loss.
Our net
loss was €19.90 million in 2008 compared to €35.61 million in
2007. The difference was primarily due to write-down of assets
acquired from Crinos amounting to €13.74 million, foreign exchange gain and
lower research and development expenses, offset by an increase in general and
administrative expenses due to the allowance for doubtful accounts of €1.78
million.
Year
Ended December 31, 2007 Compared to Year Ended December 31, 2006
Product
sales.
Our
product sales were €5.09 million for 2007 compared to
€4.08 million in 2006, an increase of €1.01 million or 25%. The
increase was primarily due to increased demand for our products from our
customers. Sales to a related party in 2007 and 2006 represented 53% and 92% of
the total product sales, respectively and decreased 29% to €2.70 million. The
decrease in sales to a related party is primarily due to the fact that in July
2007, in connection with our acquisition of the Italian marketing authorizations
and trademarks regarding pharmaceutical products known in the Italian market as
Prociclide and Noravid from Crinos S.p.A., we started selling defibrotide as a
finished product to Crinos as our distributor, rather than to our related party,
Sirton Pharmaceuticals S.p.A. Sales to third parties increased to
€2.39 million due
to this change and also due to higher sales volume of
sulglicotide. Sulglicotide is used by a South Korean manufacturer to
produce a finished product. We expect future growth in sulglicotide
revenue due to higher penetration and positioning of the finished product in the
South Korean market.
Other
revenues
Our other
revenues were €2.52 million for 2007 compared to €0.25 million in 2006. Other
revenues are primarily due to reimbursement of research and development expenses
and upfront payments recognized ratably over the expected life of the research
period under our license agreement with Sigma-Tau. Other income and
revenues also includes royalties recognized under license agreements with Crinos
S.p.A., which expired in December 2006, and gains on fixed asset
disposals.
Cost
of goods sold.
Our cost
of goods sold was €4.58 million for 2007 compared to €3.09 million in 2006. Cost
of goods sold as a percentage of product sales was 90% in 2007 compared to
75.9% in 2006.
Research
and development expenses.
We
incurred research and development expenses of €14.50 million for 2007 compared
to €8.93 million in 2006. The
expenses were primarily for the development of Defibrotide to treat and prevent
VOD and increased headcount. The difference between the periods is primarily due
to increased costs for our clinical trials, and in particular clinical research
organizations charges, regulatory activities and other costs associated with the
screening and enrollment of patients for our Phase III clinical trial of
Defibrotide to treat VOD. Also contributing to the increase was stock based
compensation of €0.44 million in 2007 compared to €0.29 million in
2006.
Write-down
of assets
In 2007,
we recorded an impairment charge of €13.74 million regarding the Italian
marketing authorizations and related trademarks for Defibrotide that we acquired
from Crinos S.p.A. The charge reflects the total consideration paid (€16
million) in excess of the present value of the cash flow we expect to receive
from these assets over the next five years.
General
and administrative expenses.
Our
general and administrative expenses were €6.28 million in 2007 compared to
€5.42 million in 2006. The increase in
2007 was primarily due to increased headcount and facilities related expenses,
cost incurred on Sarbanes-Oxley internal control implementation, general
corporate expenses, legal and other professionals fees and stock based
compensation expense of €1.36 million in 2007 compared to €0.62 million in
2006.
Depreciation
and amortization expense.
Depreciation
and amortization expense was €0.73 million in 2007 compared to €0.26 million in
2006. The increase is primarily attributable to €0.27 of amortization
of our Italian marketing authorizations and trademarks acquired in 2007.
Depreciation expense excludes depreciation of our manufacturing
facilities included in our cost of goods sold.
Foreign
currency exchange gain (loss)
Our
foreign currency exchange losses are primarily due to converting or translating
U.S. dollar cash balances to Euros.
Interest
income, net.
Interest
income (expense), net amounted to €1.36 million and €0.49
million in 2007 and 2006, respectively. Gross interest income amounted to €1.67
million and €0.71 million in 2007 and 2006, respectively, an increase of €0.97
million. The increase is a result of higher amount of invested funds in the 2007
period. Interest expense totaled €0.32 million and €0.22 million in
2007 and 2006, respectively, an increase of €.1 million attributable to an
increase in long term debt.
Net
loss.
Our net
loss was €35.6 million in 2007 compared
to €14.4 million in 2006. The
difference was primarily due to the write-down of the Italian marketing
authorizations and related trademarks for defibrotide that we acquired from
Crinos in the amount of €13.74 million and to increases in research and
development expenses and foreign exchange loss in 2007, partially offset by an
increase in interest income, net.
During
2006, we used approximately €12.2 million of cash to fund operations and working
capital requirements, and approximately €1.9 million for capital expenditures
and the acquisition of intangible assets, paid €4 million to Crinos and €4
million into escrow for the benefit of Crinos. We funded these
amounts from the following sources:
|
|
·
|
€4.3
million in gross revenues;
|
|
|
·
|
$22.1 million in gross
proceeds from a private placement of 1,943,525 of our ordinary shares
together with warrants to purchase 388,705 ordinary
shares;
|
|
|
·
|
$2.2 million in gross proceeds from exercise
of warrants and stock options; |
|
|
·
|
€5.5 million in loans;
and |
|
|
·
|
€12.8 million from cash available at December
31, 2005. |
During
2007, we used approximately €10.2 million of cash to fund operations and working
capital requirements, and approximately €11.1 million for capital expenditures
and acquisition of intangible assets, including €8 million paid to
Crinos. We funded these amounts from the following
sources:
|
|
·
|
€7.6 million in gross
revenues; |
|
|
·
|
$47.5 million in gross proceeds from a private
placement of 2,354,000 ordinary
shares; |
|
|
·
|
$8.4 million in gross proceeds from the
exercise of warrants and stock
options; |
|
|
·
|
€279 thousand in short term borrowing;
and |
|
|
·
|
€10.2 million from cash available at December
31,
2006. |
During
2008, we used approximately €12.78 million of cash to fund operations and
working capital requirements, approximately €0.59 million for capital
expenditures. We funded these amounts from the following
sources:
|
|
·
|
€7.44 million in gross
revenues; and |
|
|
·
|
€25.96 million from cash available at December
31, 2007. |
At
December 31, 2008, we had an aggregate of €4.61 million in debt
outstanding. Additional information about the maturity and repayment
obligations for this debt and interest rate structure and our material
commitments for capital expenditures is provided below under “Contractual
Obligations and Commitments.”
We expect
to devote substantial resources to continue our research and development
efforts, on regulatory expenses, and to expand our licensing and collaboration
efforts. Our funding requirements will depend on numerous factors
including:
|
|
·
|
the scope and results of our clinical
trials; |
|
|
·
|
whether we are able to commercialize and sell
defibrotide for the uses for which we are developing
it; |
|
|
·
|
advancement of other product candidates in
development; |
|
|
·
|
the timing of, and the costs involved in,
obtaining regulatory approvals; |
|
|
·
|
the cost of manufacturing
activities; |
|
|
·
|
the costs associated with building a future
commercial infrastructure; |
|
|
·
|
the
costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and other patent-related costs, including
litigation costs and results of such litigation;
and
|
|
|
·
|
our
ability to establish and maintain additional collaborative
arrangements.
|
We do not
expect our revenues to increase significantly until we successfully obtain FDA
and European regulatory marketing approval for, and begin selling, defibrotide
to treat severe VOD and prevent VOD. We believe that some of the key factors
that will affect our internal and external sources of cash are:
|
|
·
|
our
ability to obtain FDA and European regulatory marketing approval for and
to commercially launch defibrotide to treat severe
VOD;
|
|
|
·
|
the
receptivity of the capital markets to financings, generally, and of
biotechnology companies, specifically;
and
|
|
|
·
|
our
ability to enter into additional collaborative arrangements with corporate
and academic collaborators and the success of such
relationships.
|
We
believe that our cash and cash equivalent balances and anticipated cash flows
from operations will be sufficient to meet our cash requirements through
August of
2009. However, in order for us to continue as a going concern beyond
this point, we need to obtain capital from external sources. If we
are unable to obtain additional financing, we may be required to reduce the
scope of, or delay or eliminate some or all of our planned research, development
and commercialization activities, which could harm our financing condition and
operating results. Financing may not be available on acceptable
terms, or at all, and our failure to raise capital when needed could negatively
impact our growth plans and our financial condition and results of operations.
Additional equity financing may be dilutive to the holders of our ordinary
shares and debt financing, if available, may involve significant cash payment
obligations and covenants and/or financial ratios that restrict our ability to
operate our business. We are currently evaluating possible
opportunities to raise capital either by means of a financing or strategic
partnership.
Italian
law provides for limits and restrictions on our issuance of debt securities,
described in our risk factor entitled, “We are restricted under Italian law
as to the amount of debt securities that we may issue relative to our
equity.” In order to issue new equity or debt securities
convertible into equity, with some exceptions, we must increase our authorized
capital through a process described in our risk factor entitled, “The process of seeking to raise
additional funds is cumbersome, subject to the verification of a notary public
as to compliance with our bylaws and applicable law and may require prior
approval of our shareholders at an extraordinary meeting.”
We
discover, research and conduct initial development of our product candidates at
our facilities in Italy, and also hire consultants to do so in various countries
in Europe and the United States. We typically conduct preclinical laboratory and
animal studies of product candidates either ourselves or through other research
facilities. We typically engage medical centers to conduct clinical trials of
our product candidates. In certain cases, where we believe the development costs
will be substantial, we may enter into collaborative arrangements to help us
develop those product candidates. We expense research and development costs as
incurred.
Research
and Development Expenses
Our
research and development expenses consist primarily of costs associated with
research, preclinical development contract research organization charges,
regulatory activities, laboratory supplies and materials, manufacturing costs,
contracted services and clinical trials for our product
candidates. During the years ended December 31, 2006, 2007 and 2008,
we had four major categories of research projects relating to our product
candidates: defibrotide to treat VOD, defibrotide to prevent VOD, defibrotide to
treat multiple myeloma and assorted other projects. The table below presents our
research and development expenses by project for each of the years ended
December 31, 2006, 2007 and 2008.
|
|
|
For
The Years Ended December 31,
|
|
|
(in
thousands)
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Defibrotide
to treat VOD
|
|
€ |
7,067 |
|
|
€ |
11,035 |
|
|
€ |
7,131 |
|
|
Defibrotide
to prevent VOD
|
|
|
590 |
|
|
|
869 |
|
|
|
1,055 |
|
|
Multiple
myeloma
|
|
|
59 |
|
|
|
17 |
|
|
|
- |
|
|
Others
|
|
|
1,211 |
|
|
|
2,576 |
|
|
|
1,383 |
|
|
Total
|
|
€ |
8,927 |
|
|
€ |
14,497 |
|
|
€ |
9,569 |
|
In
December 2005, the Dana-Farber Cancer Institute at Harvard University completed
a Phase II clinical trial in the United States of defibrotide to treat severe
VOD. We started enrollment of patients in a Phase III clinical trial
of this product candidate in the United States in the second quarter
of 2006. We do not anticipate obtaining FDA or European regulatory approval of
this product candidate before 2010. The table above also includes
research and development expenses that we incurred in connection with a Phase
II/III clinical trial of defibrotide to treat VOD in Europe and Israel that was
sponsored by a committee of clinical investigators and conducted by Consorzio
Mario Negri Sud. The committee of clinical investigators terminated
this trial in October 2005.
Defibrotide
to prevent VOD is also currently in a Phase II/III clinical trial of children in
Europe sponsored by our company and the European Group for Blood and Marrow
Transplantation. We do not anticipate obtaining European regulatory
approval of this product candidate before 2010.
An
independent Phase I/II clinical trial in Italy of defibrotide, in combination
with melphalan, prednisone and thalidomide, to treat patients with advanced and
refractory multiple myeloma started in December 2005. The Phase I
portion included 24 patients in four cancer centers in Italy and concluded in
2007. The Phase II portion is scheduled to include 50 patients in 10 cancer
centers in Italy. The principal investigator is Dr. Antonio Palumbo,
M.D., at the Division of Hematology, University of Turin, Italy.
We expect
to continue to incur expenses for the development of defibrotide to treat and
prevent VOD. We will need additional funds before we have completed
the development of defibrotide to treat and prevent VOD. A further
discussion of the risks and uncertainties associated with developing defibrotide
and certain consequences of failing to do so are set forth in the risk factors
under the heading “Risks Relating to Our Business” as well as other risk
factors.
Intellectual
Property Rights And Patents
As of December 31, 2008, we had nine
issued U.S. patents, eight pending U.S. patent applications, 45 issued foreign
patents, 115 pending foreign patent applications and one international patent
application (not nationalized yet). These include the
following. The United States Patent & Trademark Office issued a
patent covering our manufacturing process of defibrotide in 1991, which expired
on January 15, 2008. In April 2001, we
filed a patent application with the United States Patent & Trademark
Office and corresponding patent applications in certain foreign countries
regarding the use of defibrotide in stem cell transplants, which expires in
2021.
Patent rights and other proprietary
rights are important in our business. We have sought, and intend to continue to
seek, patent protection for our inventions and rely upon patents, trademarks,
trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain a competitive advantage.
However, the patent positions of
companies like ours involve complex legal and factual questions and, therefore,
their enforceability cannot be predicted with any certainty. Our patents, those
licensed to us, and those that may be issued to us in the future may be
challenged, invalidated or circumvented, and the rights granted under them may
not provide us with protection or competitive advantages against competitors
with similar technology. Furthermore, our competitors may independently develop
similar technologies or duplicate any technology developed by us. Because of the
extensive time required for development, testing and regulatory review of a
potential product, it is possible that, before any of our product candidates can
be approved for sale and commercialized, our relevant patent rights may expire
or remain in force for only a short period following
commercialization.
We do not
have any off-balance sheet arrangements.
Contractual
Obligations and Commitments
Our major
contractual obligations and commitments relate to our real estate mortgages,
other financing from banks and financial institutions, obligations to pay Crinos
for the Italian defibrotide marketing rights and related trademarks and various
service agreements (including those related to our clinical
trials).
The
following table summarizes our long-term commitments as of December 31,
2008.
|
(in
thousands)
|
|
Total
|
|
|
1
Year
|
|
|
2
Years
|
|
|
3
Years
|
|
|
4
Years
|
|
|
5
Years
|
|
|
More
than 5 Years
|
|
|
Long-Term
Debt Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
€ |
2,441 |
|
|
€ |
483 |
|
|
€ |
466 |
|
|
€ |
448 |
|
|
€ |
431 |
|
|
€ |
413 |
|
|
€ |
200 |
|
|
Finance loans
|
|
|
756 |
|
|
|
381 |
|
|
|
250 |
|
|
|
125 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Equipment loans
|
|
|
1,114 |
|
|
|
408 |
|
|
|
415 |
|
|
|
291 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Research loan
|
|
|
544 |
|
|
|
157 |
|
|
|
127 |
|
|
|
167 |
|
|
|
93 |
|
|
|
- |
|
|
|
- |
|
|
|
|
€ |
4,855 |
|
|
€ |
1,429 |
|
|
€ |
1,258 |
|
|
€ |
1,031 |
|
|
€ |
524 |
|
|
€ |
413 |
|
|
€ |
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
Obligations
|
|
€ |
4,000 |
|
|
€ |
4,000 |
|
|
€ |
- |
|
|
€ |
- |
|
|
€ |
- |
|
|
€ |
- |
|
|
€ |
- |
|
|
Operating
leases
|
|
|
650 |
|
|
|
199 |
|
|
|
199 |
|
|
|
191 |
|
|
|
31 |
|
|
|
30 |
|
|
|
- |
|
|
Contract Research
Organizations
|
|
|
1,981 |
|
|
|
1,981 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Research and Development Programs
|
|
|
1,095 |
|
|
|
721 |
|
|
|
373 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
7,726 |
|
|
|
6,901 |
|
|
|
572 |
|
|
|
192 |
|
|
|
31 |
|
|
|
30 |
|
|
|
- |
|
|
Total
|
|
€ |
12,581 |
|
|
€ |
8,330 |
|
|
€ |
1,830 |
|
|
€ |
1,223 |
|
|
€ |
555 |
|
|
€ |
443 |
|
|
€ |
200 |
|
We
received various loans from the Minister for University and Research granted
through San Paolo-IMI Bank in September 2000. The loans are for financing
research and development of defibrotide to treat and prevent VOD, and their
bears interest at 1.0% per annum. We will need to repay these loans in
installments every six months beginning six months after the completion of the
related research and development, but no later than January 2012. At
December 31, 2008, the amount outstanding under these loan was €249
thousand.
On July
9, 2004, we obtained a loan in the approximate amount of €487 thousand from
Cassa di Risparmio di Parma e Piacenza. The loan was obtained pursuant to Law
No. 1329 of 28 November 1965 (Legge Sabatini), a law that facilitates the
purchase and the lease of new production equipment. The loan is secured by a
lien on our equipment and machinery. On August 4, 2004, we
obtained an additional loan in the amount of €388 thousand from Cassa di
Risparmio di Parma e Piacenza under the same terms and conditions. At
December 31, 2008 the aggregate amount outstanding under these two loans
was €131
thousand.
On April
20, 2006, we obtained a five year financing facility from Banca Intesa
Mediocredito S.p.A. of up to €1 million to finance our purchase and installation
of two reactors in our manufacturing facility. The facility has a
five-year term and bears interest at the three-month Euribor rate plus
1.7%. It is secured by Banca Intesa debt securities in the aggregate
amount of €525 thousand that we purchased and which expire on May 10,
2011. We make installment payments on the facility of €131 thousand
every six months until its final maturity in April 2011. At December
31, 2008, the aggregate amount outstanding under this facility was €656
thousand.
On June
28, 2006, we obtained a loan in the amount of €2,800 thousand from Banca
Nazionale Del Lavoro S.p.A. The loan is secured by a mortgage on
certain of our land and buildings. It bears interest at the six month
Euribor rate plus 1.00%, the principal of which will be repaid in 14
installments, every six months, starting from December 27, 2007 until final
maturity in 2014 and the interest on which will be paid every six months
starting from June 27, 2006. At December 31, 2008, the principal
amount outstanding under this loan was €2,200 thousand.
On June
30, 2006, we obtained a loan in the amount of €750 thousand from San Paolo IMI
S.p.A. for the acquisition and installation of manufacturing
equipment. The loan bears interest at the three month Euribor rate
plus 1.20%. Beginning on June 15, 2008, the rate will be decreased to
1.02% over the Euribor rate. The loan is payable in thirteen
quarterly installments of approximately €58 beginning on June 15, 2008 through
June 15, 2011. Interest is due quarterly beginning on September 15,
2006. The agreement requires us to maintain a minimum level of net
shareholders’ equity determined in accordance with Italian generally accepted
accounting principles. At December 31, 2008, the amount outstanding
under this loan was €625 thousand.
On
December 20, 2006 we obtained three loans from Banca Intesa
S.p.A. The first of these loans is in the amount of €230 thousand for
a term of 60 months, maturing on December 31, 2006. Principal and
interest are due in 20 quarterly installments beginning on March 31,
2007. It bears interested at the three month Euribor rate plus
1%. At December 31, 2008, the amount outstanding under this loan was
€144 thousand.
The
second loan is in the amount of €500 thousand for a term of 60 months, maturing
on December 31, 2011. Principal and interest are due in 60 monthly
installments beginning on January 31, 2006. It bears interest at the
three month Euribor rate plus 1%. At December 31, 2008, the amount
outstanding under this loan was €314 thousand.
The third
loan is in the amount of €225 thousand for a term of 57 months (after a
technical pre-amortization period from December 20, 2006 to March 15, 2007)
maturing on December 15, 2011. It must be used within six months for
investments in the innovation of products and/or production processes or to buy
manufacturing equipment. Principal and interest payments are due in
quarterly installments starting on June 15, 2007. It bears interest
at the three month Euribor rate plus 0.8%. At December 31, 2008, the
amount outstanding under this loan was €148 thousand.
In
December 2008, we received a loan from the Minister for University and Research
granted through IntesaSanpaolo. The loan is to be used for the research and
development of defibrotide to treat and prevent VOD and bears interest at 1.0%
per annum. We will need to repay this loan in seven installments. due every six
months, beginning January 2009. At December 31, 2008, the amount
outstanding under these loan was €147
thousand
Our
commitments for clinical research consist of fixed price contracts with
third-party research organizations related to clinical trials for the
development of defibrotide and related consulting services for advice regarding
FDA issues.
In
connection with our purchase of the Italian marketing rights to defibrotide and
related trademarks from Crinos, we paid Crinos €4 million in 2006, placed
another €4 million in escrow, which was released to Crinos in April 2007, paid
Crinos an additional installment of €4 million in December 2007, and paid Crinos
a final installment of €4 million in January 2009.
Set forth
below is the name, birth date, position and a brief account of the business
experience of each of our executive officers, significant employees and
directors as of March 31, 2009.
|
Name
|
|
Age
|
|
Position
|
|
Dr.
Laura Ferro
|
|
58
|
|
President
and Chief Executive Officer, Director
|
|
Gary
Gemignani
|
|
43
|
|
Executive
Vice-President and Chief Financial Officer
|
|
Dr.
Massimo Iacobelli
|
|
49
|
|
Senior
Vice-President, Scientific Director
|
|
Armando
Cedro
|
|
53
|
|
Chief
of Manufacturing
|
|
Salvatore
Calabrese
|
|
39
|
|
Vice-President,
Finance and Secretary
|
|
Dr.
Kenneth Anderson (1)
|
|
57
|
|
Director
|
|
Gigliola
Bertoglio (2)
|
|
74
|
|
Director
|
|
Luca
Breveglieri (3)
|
|
57
|
|
Director
|
|
Marco
Codella
|
|
49
|
|
Director
|
|
Dr.
Lee M. Nadler (4)
|
|
61
|
|
Director
|
|
Malcolm
Sweeney (5)
|
|
60
|
|
Director
|
|
Dr.
Andrea Zambon (6)
|
|
51
|
|
Director
|
|
(1)
|
Member
of the nominating and corporate governance committee and clinical
committee.
|
|
(2)
|
Member
of the audit committee (chairperson) and nominating and corporate
governance committee.
|
|
(3)
|
Member
of the nominating and corporate governance committee (chairperson) and
audit committee.
|
|
(4)
|
Member
of the clinical committee (chairperson) and compensation
committee.
|
|
(5)
|
Member
of the audit committee and compensation
committee.
|
|
(6)
|
Member
of the compensation committee (chairperson) and clinical
committee.
|
Dr. Laura Ferro has
served as our President and Chief Executive Officer and one of our directors
since 1991. Her current term as a director expires on the date of the ordinary
shareholders’ meeting approving our 2008 Italian GAAP financial
statements. Dr. Ferro is also the President and Chief Executive
Officer of our largest shareholder, FinSirton. She also serves as Vice President
of Sirton, a subsidiary of FinSirton that specializes in manufacturing
pharmaceutical products. Dr. Ferro is also a
member of the board of directors of each of FinSirton, Sirton and Foltene
Laboratories S.p.A., a former subsidiary of FinSirton that is in the hair care
products business. From 1991 to 1997, Dr. Ferro held various
executive positions at Sirton, including Chief Executive Officer and Chairperson
of the research and development unit. Prior to that, Dr. Ferro was a
practicing physician for 15 years. Dr. Ferro is a member of the
executive committee of Farmindustria, an Italian pharmaceutical industry group.
She is also the President of the Gianfranco Ferro Foundation, a not-for-profit
Italian organization with the mission of stimulating research, education and
dissemination of information on the correct use of medications and adverse
events of medicines. Dr. Ferro received her M.D. and Ph.D. degrees from the
University of Milan, and a MBA from Bocconi University in Milan in 1994.
Dr. Ferro is a licensed physician. She was certified in psychiatry at the
University of Milan in 1981 and in Clinical Pharmacology at the University of
Milan in 1994.
Gary G. Gemignani has served
as our Executive Vice-President and Chief Financial Officer since June
2006. From 2004 to 2005, Mr. Gemignani was the Vice President and
Controller for the US Pharmaceuticals Division of Novartis AG, a pharmaceutical
and consumer health company. From 1998 to 2004, he held a variety of
vice-president level positions for Prudential Financial Inc., a financial
products and services provider. From 1993 to 1998, Mr. Gemignani held
a variety of senior financial positions at Wyeth, a pharmaceutical, consumer
healthcare and animal health company. From 1986 to 1993, he was an
employee of Arthur Andersen & Co. Mr. Gemignani received a
bachelor of science in accounting from St. Peter’s College.
Dr. Massimo Iacobelli has
served as our Senior Vice-President, Scientific Director since 2002 and as our
Vice President, Clinical Development and Chief Medical Office from 1995 to 2002.
From 1990 to 1994, he was the Senior Vice-President, Medical Marketing, at
Sirton. From 1988 to 1989, Dr. Iacobelli directed the Drug Safety
Department at Bayer S.p.A. He received a medical degree from Università degli
Studi, Napoli, Italy.
Armando Cedro has served as
our Chief of Manufacturing since 2003. From 1997 to 2003, he served as our
Active Pharmaceutical Ingredient Production Manager. From 1987 to 1997, he
served as the Chemical Research and Development Laboratories and Pilot Plant
Manager at Sirton. From 1982 to 1987, he served as the Chemical Development
Laboratory Manager at Societa Prodotti Antibiotici, a manufacturer of antibiotic
pharmaceutical products. Mr. Cedro received a degree in Industrial
Chemistry from the Universita degli Studi di Milano, Italy.
Salvatore Calabrese has served
as our Vice-President, Finance and Secretary since February 2005. From
December 2003 until February 2005, he was an Accounting and Finance
Manager for Novuspharma, S.p.A., a development stage biopharmaceutical company
focused on the discovery and development of cancer drugs and a subsidiary of
Cell Therapeutics, Inc., a public reporting company, which then merged into
Cell Therapeutics, Inc. He reported to the Chief Financial Officer of Cell
Therapeutics, Inc. and was responsible for cost containment, budgeting,
financial reporting and the implementation of Sarbanes-Oxley compliance. From
September 1996 until November 2003, Mr. Calabrese was employed by
PricewaterhouseCoopers as an accountant and was a Manager in Assurance Business
Advisory Services at the time of departure. From October 2000 to
June 2003, Mr. Calabrese worked in the Boston, MA office of
PricewaterhouseCoopers. He earned a Bachelors’ Degree in Economics at the
University of Messina and a Masters’ Degree in Accounting, Audit and Financial
Control at the University of Pavia. He is also a chartered accountant in the
Republic of Italy.
Dr. Kenneth Anderson has
served as one of our directors since June 2005. His current term
expires on the date of the ordinary shareholders’ meeting approving our 2008
Italian GAAP financial statements. Dr. Anderson has been a professor at the
Dana-Farber Cancer Institute, Cancer Research and Clinical Care, since 1980, a
professor of medicine at Harvard Medical School since 2000 and a Kraft Family
professor of medicine at Harvard Medical School since 2002. He has been the
Chief of the Division of Hematologic Neoplasia at the Dana-Farber Cancer
Institute since 2002, the Vice Chair of the Joint Program in Transfusion
Medicine at Harvard Medical School since 2000, the Director of the Jerome Lipper
Multiple Myeloma Center at the Dana-Farber Cancer Institute since 2000, the
Associate Medical Director of Brigham and Women’s Hospital Blood Bank since 1998
and an attending physician at the Bone Marrow Transplantation Service at Brigham
and Women’s Hospital since 1997. Dr. Anderson is a member of 11 medical and
scientific societies and on the editorial boards of 11 medical and scientific
journals. He received a Bachelors’ degree, summa cum laude, from Boston
University in 1973, a M.D. from Johns Hopkins University School of Medicine in
1977 and a Masters’ Degree in Art from Harvard University in 2000.
Gigliola Bertoglio has served
as one of our directors since December 2004. Her current term as a director
expires on the date of the ordinary shareholders’ meeting approving our 2008
Italian GAAP financial statements. Ms. Bertoglio has been a
self-employed consultant since January 2003. From 1970 through 2003 she was
employed by Reconta Ernst & Young (the Italian affiliate of
Ernst & Young LLP) and its predecessors and was an audit partner
beginning in 1977. From 1998 until leaving the firm, she was responsible for the
firm’s Capital Market Group in Italy. From 1989 to 1998, she was responsible for
directing the firm’s Professional Standards Group and member of the Accounting
and Auditing Standards Group of Ernst & Young International and as a
coordinating audit partner on clients with international operations. From 1977
to 1989, Ms. Bertoglio was a partner of the Italian firm of Arthur
Young & Co. (the predecessor to Ernst & Young) where she was
responsible for directing the firm’s Professional Standards Group and serving in
an advisory role to the Accounting and Auditing Standards Group of Arthur Young
International and as a coordinating audit partner on clients with international
operations. From 1970 to 1977, she was an Audit Manager (1970 to 1974) and an
Audit Principal (1975 to 1977) with the Italian firm of Arthur Young &
Co. in its Rome and Milan offices. Prior to 1970, Ms. Bertoglio was
employed in the New York offices of Horwath & Horwath and LKH&H,
both of which were public accounting firms. She earned a degree in Public
Accounting from New York University and a Diploma in Accounting from Economics
Institution in Biella, Italy. She is a Certified Public Accountant (active
license to August 31, 2002, inactive after that) in the United States and
included in the Register of Authorized Auditors of Consob, the Italian Stock
Exchanges regulatory agency of public companies.
Luca Breveglieri has served as
one of our directors since April 2006. His current term expires on
the date of the ordinary shareholders’ meeting approving our 2008 Italian GAAP
financial statements. Mr. Breveglieri is an Italian-qualified
attorney and has been a partner of Breveglieri Verzini e Soci, an Italian law
firm, since 2000. From 1982 to 2000, Mr. Breveglieri was the founding
partner of Breveglieri e Associati. Mr. Breveglieri is an Italian
certified public accountant. Mr. Breveglieri received a degree in law
from Universita degli Studi, Pisa, Italy, in 1977.
Marco Codella has served as
one of our directors since June 2005. His current term expires on the
date of the ordinary shareholders’ meeting approving our 2008 Italian GAAP
financial statements. Mr. Codella has been the Chief Financial
Officer of Sigma Tau Industrie Farmaceutiche Riunite S.p.A., an international
family of pharmaceutical companies, since May 1999 and he has been Chief
Financial Officer of Sigma Tau Finanziaria S.p.A. since July
2008. Mr. Codella was a professor of Economics and Management
Accounting at University of Rome, La Sapienza from 2001 to 2007. From
1997 to 1999, Mr. Codella was the Finance, IT and Logistics Director of
Crown Cork & Seal Italy S.p.A., an Italian subsidiary of Crown
Holdings, Inc., a manufacturer of packaging products to consumer marketing
companies. From 1994 to 1997, Mr. Codella was the Finance and IT Director
of Crown Cork & Seal Italy S.p.A. From 1990 to 1994, Mr. Codella held
various finance positions at Digital Equipment Italia S.p.A., an Italian
subsidiary of Digital Equipment Corporation, a computer company. From 1987 to
1990, Mr. Codella was the Finance Manager of an Italian subsidiary of Ampex
Corporation, a provider of technology for acquisition, storage and processing of
visual information. From 1984 to 1987, Mr. Codella was an auditor at
Deloitte, Haskins & Sells, an accounting firm. Mr. Codella is a
director of Sigma Tau Finanziaria SpA . He is also a Director of Sigma
Tau Industrie Farmaceutiche Riunite S.p.A., Biosint S.p.A.,
Avantgarde S.p.A., Tecnogen S.p.A., Sigma Tau Healthscience LLC, Sigma Tau
India, Sigma Tau BV, and Sigma Tau Healthscience International
BV, each of which is a subsidiary of Sigma Tau Finanziaria S.p.A.,
and Fonchim, a pension fund for chemical industry workers. Mr. Codella is
an Italian certified public accountant. Mr. Codella graduated summa cum
laude from Rome University in 1984 with a degree in economics.
Dr. Lee M. Nadler has served
as one of our directors since June 2005. His current term expires on
the date of the ordinary shareholders’ meeting approving our 2008 Italian GAAP
financial statements. Dr. Nadler is the Senior Vice President of
Experimental Medicine at Harvard University’s Dana-Farber Cancer Institute and a
Professor of Medicine at Harvard University. He joined the staff of the
Dana-Farber Cancer Institute in 1977, and was promoted to the faculty in 1980.
He served as chief and chair of several departments, including serving as the
First Chairperson of the Dana-Farber Cancer Institute’s Department of Adult
Oncology. Dr. Nadler received a medical degree from Harvard Medical School
in 1973.
Malcolm Sweeney has served as
one of our directors since April 2007. His current term expires on the date of
the ordinary shareholders’ meeting approving our 2008 Italian GAAP financial
statements. From 2001 to 2005, Mr. Sweeney was the Head of Financial Reporting
and Accounting of the Pharma Division at Novartis AG, a major international
pharmaceutical company. From 1990 to 2000, Mr. Sweeney worked for IMS
Health Inc., (formerly IMS International), a provider of market intelligence to
the pharmaceutical and healthcare industries, and associated
companies. He held the positions of Corporate Controller and Senior
Director of Finance for IMS Health Inc., as well as that of Leader of European
Shared Services for Dun and Bradstreet in 1994 and 1995 when Dun and Bradstreet
used to own IMS Health Inc. and several other major information service
providers. From 1974 to 1990, he held a variety of finance positions
for divisions of General Electric. Mr. Sweeney resides in the U.K.,
is a chartered accountant, admitted to the Institute of England & Wales in
1974 when working for KPMG (formerly Peat, Marwick, Mitchell and
Co.). He received a Bachelor of Science in Physics, Economics and
Philosophy from the University of Exeter in 1970.
Dr. Andrea Zambon has
served as one of our directors since June 2005. His current term
expires on the date of the ordinary shareholders’ meeting approving our 2008
Italian GAAP financial statements. Dr. Zambon also serves on the
board of directors and is the President of Tubilux Pharma, which operates in the
research, production and marketing of ophthalmic products. Dr. Zambon
is also the President and Chief Executive Officer of Kjos, a holding company
founded in 2005, that focuses its investments in technology driven companies in
different countries and industry sectors, in particular, health services and
technology, chemical and energy, and security. Dr. Zambon
co-founded and was the President of a web-based company, OKSalute S.p.A., from
2000 until 2002. From 2000 until 2004, Dr. Zambon was the president
and a board member of Zambon S.p.A., the parent company of Zambon Group, S.p.A.,
an Italian pharmaceutical and chemical company that operates in 19 countries in
Europe, North and South America and Asia. Dr. Zambon started his
career in 1986 at the Zambon Group S.p.A. where he has held various positions
until 1999, including President and Chief Executive Officer from 1991 to
1999. Dr. Zambon has also been employed by Smith Kline &
Beckman in various departments, including clinical development, regulatory
affairs, and market research, and Fujisawa US. Over the years, Dr.
Zambon has served on numerous corporate and industry association boards.
Dr. Zambon earned a Medical Degree from the University of Milan Medical
School.
Our
Scientific Advisory Board
Our
scientific advisory board advises us with respect to our product development
strategy as well as the scientific and business merits of licensing
opportunities or acquisition of compounds and the availability of opportunities
for collaborations with other pharmaceutical companies. We have in the past
compensated and in the future intend to compensate scientific advisory board
members with cash fees for attending meetings. In addition to Dr. Lee
Nadler and Dr. Kenneth Anderson, who are also directors, the current scientific
advisory board members are:
Ralph B. D’Agostino, Sr. Ph.D.
has been a Professor of Mathematics/Statistics at Boston University since 1977
and a Professor of Public Health at Boston University, School of Public Health,
Department of Epidemiology and Biostatistics since 1982. He has been the editor
of Statistics in Medicine since 1998. Dr. D’Agostino is also an Associate
Editor of American Journal of Epidemiology, and on the editorial board of
Current Therapeutic Research and the Journal of Hypertension. He has been the
director of the Statistics and Consulting Unit at Boston University and Director
of Data Management and Statistics at the Framingham Study. Dr. D’Agostino
has served as an expert consultant to the FDA since 1974. He is a Fellow of the
American Statistical Association and the Cardiovascular Epidemiology section of
the American Heart Association. He has twice, in 1981 and 1995, received the FDA
Commissioner’s Special Citation. He received an A.B. in Mathematics,
summa cum laude, from Boston University in 1962, an A.M. in Mathematics
from Boston University in 1964 and a Ph.D. in Mathematical Statistics from
Harvard University in 1968.
Dr. Stephen Fredd M.D.
has been a consultant to the pharmaceutical industry since 2002. From 1980 to
2002, Dr. Fredd was the Deputy Director of the Division of Cardi-Renal
Drugs of the Center for Drug Evaluation and Research at the FDA. From 1987 to
1997, he was the Director and Founder of the Division of Gastrointestinal and
Coagulation Drugs of the Center for Drug Evaluation and Research at the FDA.
From 1982 to 1987, Dr. Fredd was a Medical Officer and the Acting Director
of the Officer of Orphan Products Development of the Office of the Commissioner
at the FDA. From 1980 to 1982, he was a Medical Officer at the Division of
Antinflammatory, Oncological and Radiopharmaceutical Drugs of the Center for
Drug Evaluation and Research at the FDA. From 1965 to 1980, Dr. Fredd was a
privately practicing doctor of internal medicine. From 1977 to 1980, he was an
Assistant Professor of Medicine at George Washington University Medical Center,
and from 1965 to 1977, he was an Instructor in Medicine at New York University
Medical Center. Dr. Fredd received FDA Awards of Merit in 1989 and 1997,
FDA Commendable Service Awards in 1987 and 1998 and the FDA Commissioner’s
Special Citation in 1989. Dr. Fredd received an A.B., magna cum laude, from
Princeton University in 1955 and a M.D. from New York University Medical Center
in 1959.
Richard Champlin, M.D. has
been a Professor of Medicine and Chairman of the Department of Blood and Marrow
Transplantation at the University of Texas M. D. Anderson Cancer Center since
1990. From 1981 to 1990, Dr. Champlin was an Assistant and Associate
Professor of Medicine and directed the Transplantation Biology Program at the
UCLA Center for the Health Sciences. Dr. Champlin chaired the Working
Committee on Alternative Donors and Cell Sources of the International Bone
Marrow Transplant Registry from 1995 to 2000. He was the founding president of
the American Society of Blood and Marrow Transplantation from 1992 to 1994 and
president of the Council for Donor, Transplant and Collection Centers for the
National Marrow Donor Program from 1990 to 1993. He has been a vice president of
the Foundation for Accreditation of Hematocellular Therapy since 1996, was a
member of the Biologic Response Modifiers Advisory Board for the FDA from 1999
to 2002 and was a member of the Hematology Board, American Board of Internal
Medicine from 1996 to 2002. Dr. Champlin is a member of several
scientific societies and serves on the Editorial Boards of Blood, Bone Marrow
Transplantation and Journal of Hematotherapy. He has been the
President of the Center for International Blood and Marrow Transplantation since
2003. Dr. Champlin received a M.D. from the University of Chicago’s
Pritzker School of Medicine in 1975.
Compensation
of Directors and Executive Officers
For the
year ended December 31, 2006, the aggregate cash compensation to our executive
officers and directors as a group was approximately €1.092
million. For the year ended December 31, 2007, the aggregate cash
compensation to our executive officers and directors as a group was
approximately €1.291 million. For the year ended December 31, 2008,
the cash compensation to our executive officers and directors
were €.90 million and €.47 million,
respectively. During the year ended December 31, 2006, we
granted options to purchase an aggregate of 130,000 ordinary shares to our
executive officers and directors at exercise prices ranging from $12.60 to
$17.35 that, as amended, terminate on dates ranging from April 28, 2016 to June
1, 2016. During the year ended December 31, 2007, we granted options
to purchase an aggregate amount of 429,000 ordinary shares to executive officers
and directors at exercise prices ranging from $16.52 to $18.95 that terminate on
dates ranging from March 26, 2017 to November 9, 2017. During the
year ended December 31, 2008, we granted options to purchase an aggregate of
220,648 ordinary shares to executive officers and directors at exercise prices
ranging from $5.20 to $13.98 that terminate on dates ranging from January 2,
2018 to May 9, 2018.
Share-Based
Compensation Plans
2004
Equity Incentive Plan
Our board
of directors proposed a capital increase for our 2004 Equity Incentive Plan to
our shareholders on September 2, 2004. Our shareholders approved that
capital increase on September 30, 2004. Our board of directors approved the
specific terms of our 2004 Equity Incentive Plan effective as of
September 30, 2004. Our shareholders approved the specific terms of our
2004 Equity Incentive plan on April 28, 2005. On July 31, 2006, our
board of directors approved an amended and restated version of our 2004 Equity
Incentive Plan to reflect minor revisions, including an Italian law requirement
that all shares issued under the plan be paid for in cash in at least an amount
equal to €4.50 per share, which was the net worth of our company at the time of
the capital increase relating to the plan. On March 26, 2007, our
board of directors approved an amendment to the Amended and Restated 2004 Equity
Incentive Plan, extending the term of the plan to 2019. Our
shareholders approved this amendment on April 27, 2007.
The
incentive plan authorizes 1,500,000 ordinary shares for issuance. The maximum
number of shares that may be issued under the incentive plan subject to
incentive share options is 1,500,000. At December 31, 2008, there were 1,475,000
shares underlying outstanding options, with a weighted average exercise price of
$12.18. Shares subject to share awards that have expired or otherwise
terminated without having been exercised in full again become available for the
grant of awards under the incentive plan. In the event of a share
split or other alteration in our capital structure, without the receipt of
consideration, appropriate adjustments will be made to outstanding awards to
prevent dilution or enlargement of participant’s rights. The plan is governed by
Italian law.
Our
incentive plan provides for the grant of incentive share options (as defined in
Section 422 of the U.S. Internal Revenue Code) to employees, including
officers and employee-directors, and nonstatutory share options, restricted
share purchase rights, restricted share unit awards, share appreciation rights
and share bonuses to employees, including our officers, directors and
consultants who are subject to tax in the United States. The incentive plan also
provides for the periodic automatic grant of nonstatutory share options to our
non-employee directors.
The
incentive plan is administered by our board of directors or a committee
appointed by our board of directors. The board or the committee determines
recipients and types of awards to be granted, including the number of shares
subject to an award, the vesting schedule of awards, the exercisability of
awards, and subject to applicable restrictions, other terms of awards. The board
of directors has delegated administration of the incentive plan to the
compensation committee.
The term
of share options granted under the incentive plan generally may not exceed ten
years, although the capital increase relating to the ordinary shares issuable
upon exercise of such options expires on September 30, 2019. Our
compensation committee determines the price of share options granted under the
incentive plan, provided that the exercise price for an incentive share option
cannot be less than 100% of the fair market value of our ordinary shares on the
date of grant. No incentive share option may be granted to any person who, at
the time of the grant, owns (or is deemed to own) ordinary shares possessing
more than 10% of our total voting ordinary shares, unless the option exercise
price is at least 110% of the fair market value of the ordinary shares on the
date of grant and the term of the incentive share option does not exceed five
years from the date of grant. The exercise price for a nonstatutory share option
can vary in accordance with a predetermined formula while the option is
outstanding. In addition, the aggregate fair market value, determined at the
time of grant, of the ordinary shares with respect to which an incentive share
option first becomes exercisable during any calendar year (under the incentive
plan and all of our other equity compensation plans) may not exceed
$100 thousand.
Options
granted under the incentive plan vest at the rate determined by our compensation
committee. Typically, options granted under the incentive plan vest over three
years, with one-third of the shares covered by the option vesting on the first
anniversary of the grant date and the remainder vesting monthly over the next
two years.
Generally,
the optionee may not transfer a share option other than by will or the laws of
descent and distribution unless the optionee holds a nonstatutory share option
that provides otherwise. However, an optionee may designate a beneficiary who
may exercise the option following the optionee’s death. An optionee whose
service relationship with us ceases for any reason may exercise the option to
the extent it was vested for the term provided in the share option agreement.
Options generally expire three months after the termination of an optionee’s
service. However, if an optionee is permanently disabled or dies during his or
her service, that person’s options generally may be exercised up to
12 months following disability or death.
Share
appreciation rights granted under our incentive plan may be paid in our ordinary
shares, cash or a combination of the two, as determined by our board of
directors. The grant of a share appreciation right may be granted subject to a
vesting schedule determined by our board of directors.
Restricted
share purchase rights granted under the incentive plan may be granted pursuant
to a repurchase option in our favor that will lapse in accordance with a vesting
schedule and at a price determined by the board of directors (or a committee
appointed by the board of directors). Rights under a share bonus or a restricted
share purchase award are transferable only upon such terms and conditions as are
set forth in the relevant agreement, as determined by the board of directors (or
the committee appointed by the board of directors) in its sole
discretion.
When we
become subject to Section 162(m) of the Internal Revenue Code which denies
a deduction to publicly held companies for certain compensation paid to
specified employees in a taxable year to the extent the compensation exceeds
$1.0 million, no person may be granted share options and/or share appreciation
rights under the incentive plan covering more than 500,000 ordinary shares in
any fiscal year. In addition, no person may be granted restricted share purchase
rights, share units and/or share bonuses under the incentive plan covering more
than 250,000 ordinary shares in any fiscal year. However, in connection with a
participant’s first year of employment, such participant may be granted options
and/or share appreciation rights covering up to 600,000 ordinary shares and
restricted share purchase rights, share units and/or share bonuses covering up
to 500,000 ordinary shares.
In the
event of certain corporate transactions (including, but not limited to, a sale
or other disposition of all or substantially all of our assets, a merger or a
consolidation), all outstanding awards under the incentive plan will be subject
to the terms and conditions of the agreement memorializing the transaction. The
agreement may provide for the assumption or substitution of awards by any
surviving entity, the acceleration of vesting (and exercisability, if
applicable) or the cancellation of awards with or without consideration. In
addition, at the time of grant, our board of directors may provide for
acceleration of vesting in the event of a change in control. In the event of a
change in control, non-employee director options outstanding under the incentive
plan will automatically become vested and will terminate if not exercised prior
to such a change in control.
The board
of directors may amend the incentive plan at any time. Amendments will be
submitted for shareholder approval to the extent required by applicable laws,
rules and regulations. The incentive plan will terminate on September 30,
2019 unless sooner terminated by the board of directors or a committee appointed
by the board of directors.
2004
Italy Stock Award Sub-Plan
Our
Amended and Restated 2004 Italy Stock Award Sub-Plan is a part of our Amended
and Restated 2004 Equity Incentive Plan and provides for the grant of share
options and the issuance of share grants to certain of our employees who reside
in the Republic of Italy and who are liable for income tax in the Republic of
Italy. Generally, the exercise price for a share option under the Italy sub-plan
cannot be less than the average of the closing price of our ordinary shares
listed on the American Stock Exchange or The Nasdaq Global Market System, as
applicable, over the 30 days preceding the date of grant. No share option
granted under our Italy sub-plan may cover more than 10% of the voting rights in
our annual meeting of shareholders or 10% of our capital or equity. Share grants
will be made in consideration for past services.
Generally,
a participant under the Italy sub-plan may not transfer a share award other than
by applicable law. However, a participant under the Italy sub-plan may designate
a beneficiary who may exercise the award following the participant’s
death.
In the
event of certain corporate transactions (including, but not limited to, a sale
or other disposition of all or substantially all of our assets, a merger or a
consolidation), all outstanding awards under the Italy sub-plan will be subject
to the terms and conditions of the agreement memorializing the transaction. The
agreement may provide for the assumption or substitution of awards by any
surviving entity, the acceleration of vesting (and exercisability, if
applicable) or the cancellation of awards with or without consideration. In
addition, at the time of grant, our board of directors may provide for
acceleration of vesting in the event of a change in control.
The Italy
sub-plan will terminate on September 30, 2019 unless sooner terminated by
our board of directors.
2004
Nonstatutory Share Option Plan and Agreement
Our board
of directors proposed a capital increase for our 2004 Nonstatutory Share Option
Plan and Agreement to our shareholders on September 2, 2004 and our
shareholders approved that capital increase on September 30, 2004. Our
board adopted the specific terms of our 2004 Nonstatutory Share Option Plan and
Agreement on October 1, 2004. Our shareholders approved the
specific terms of our 2004 Nonstatutory Share Option Plan and Agreement on April
28, 2005. The sole person eligible to receive an option under the
plan was Cary Grossman, our former Executive Vice President and Chief Financial
Officer. On October 1, 2004, Mr. Grossman received an option to
purchase all 60,000 shares authorized for issuance under the plan. The exercise
price of the option issued under the plan is $4.50. The option became fully
vested on December 15, 2004. On March 23, 2006, we and Mr. Grossman amended
and restated this option to have an exercise price of $5.58 to comply with a
requirement under Italian law. We entered into an agreement with Mr.
Grossman whereby we agreed to pay him $64,800 (the amount of the aggregate
increase in the exercise price), subject to certain conditions, in return for
amending the exercise price. Mr. Grossman has exercised this option
in full.
2007
Stock Option Plan
Our board
of directors proposed a capital increase for our 2007 Stock Option Plan and the
specific terms of such plan on March 26, 2007. Our shareholders
approved the capital increase and the terms of the plan on April 27,
2007.
The 2007
Stock Option Plan authorizes 1,000,000 ordinary shares for
issuance. At December 31, 2008, there were 322,178 shares underlying
outstanding options, with a weighted average exercise price of $11.64. Shares
subject to options that have expired or otherwise terminated without being
exercised in full again become available for issuance under the
plan. In the event of a share split or other alteration in our
capital structure, without the receipt of consideration, appropriate adjustments
will be made to the outstanding awards to prevent dilution or enlargement of a
participant’s rights. The plan is governed by Italian
law.
The 2007
Stock Option Plan provides for the grant of incentive stock options (as defined
in Section 422 of the U.S. Internal Revenue Code) to employees, including
officers and employee-directors, and nonstatutory stock options. The
plan also provides for the periodic automatic grant of nonstatutory stock
options to our non-employee directors.
The 2007
Stock Option Plan is administered by our board of directors or a committee
appointed by our board of directors. The board or the committee determines
recipients and types of options to be granted, including the number of shares
subject to an option, the vesting schedule of options, the exercisability of
options, and subject to applicable restrictions, other terms of options. The
board of directors has delegated administration of the 2007 Stock Option Plan to
the compensation committee.
The term
of share options granted under the 2007 Stock Option Plan generally may not
exceed the earlier of ten years and March 26, 2022. Our compensation
committee determines the price of share options granted under the 2007 Stock
Option Plan, provided that the exercise price for an incentive share option
cannot be less than the higher of:
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100% of the fair market value (110% for
10-percent shareholders) of our shares on the date of
grant, |
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an
amount corresponding, as of the date of exercise, to €3.02 per share
and
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an
amount corresponding, as of the date of exercise, to the nominal value of
each share.
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No
incentive share option may be granted to any person who, at the time of the
grant, owns (or is deemed to own) ordinary shares possessing more than 10% of
our total voting ordinary shares, unless the option exercise price is at least
110% of the fair market value of the ordinary shares on the date of grant and
the term of the incentive share option does not exceed five years from the date
of grant. The exercise price for a nonstatutory share option can vary
in accordance with a predetermined formula while the option is outstanding. In
addition, the aggregate fair market value, determined at the time of grant, of
the ordinary shares with respect to which an incentive share option first
becomes exercisable during any calendar year (under the 2007 Stock Option Plan
and all of our other equity compensation plans) may not exceed $100
thousand.
Options
granted under the 2007 Stock Option Plan vest at the rate determined by our
compensation committee. Typically, options granted under the 2007 Stock Option
Plan vest over three years, at the rate of one-third of the shares covered by
the option vesting on the first anniversary of the grant date and the remainder
vesting monthly over the next two years.
Generally,
the optionee may not transfer a share option other than by will or the laws of
descent and distribution unless the optionee holds a nonstatutory share option
that provides otherwise. However, an optionee may designate a beneficiary who
may exercise the option following the optionee’s death. An optionee whose
service relationship with us ceases for any reason may exercise the option to
the extent it was vested for the term provided in the share option agreement.
Options generally expire three months after the termination of an optionee’s
service. However, if an optionee is permanently disabled or dies during his or
her service, that person’s options generally may be exercised up to 12 months
following disability or death.
Each
director who is not otherwise one of our employees or consultants automatically
is granted a nonstatutory share option for 10,000 ordinary shares upon his or
her initial election or appointment to our board of directors. These
grants vest one-third one year after the date of grant and the remainder in
twenty-four equal monthly installments beginning one year and one month from the
date of grant, provided that the person is still serving as a non-employee
director on each such vesting date. Upon the conclusion of each ordinary annual
meeting of our shareholders, each non-employee director receives a nonstatutory
share option for 5,000 ordinary shares. These grants vest in twelve
equal monthly installments beginning one month from the date of grant, provided
that the person is still serving as a non-employee director on each such vesting
date. The exercise price of the options granted to non-employee directors is
equal to the fair market value of our ordinary shares on the date of grant and
the term ends on the earlier of ten years after the date of the grant and March
26, 2022.
In the
event of certain corporate transactions (including, but not limited to, a sale
or other disposition of all or substantially all of our assets, a merger or a
consolidation), all outstanding options under the 2007 Stock Option Plan will be
subject to the terms and conditions of the agreement memorializing the
transaction. The agreement may provide for the assumption or substitution of
options by any surviving entity, the acceleration of vesting (and
exercisability, if applicable) or the cancellation of options with or without
consideration. In addition, at the time of grant, our board of directors may
provide for acceleration of vesting in the event of a change in control. In the
event of a change in control, non-employee director options outstanding under
the 2007 Stock Option Plan will automatically become vested and will terminate
if not exercised prior to such a change in control.
The board
of directors may amend the 2007 Stock Option Plan at any time. Amendments will
be submitted for shareholder approval to the extent required by applicable laws,
rules and regulations. The 2007 Stock Option Plan will terminate on March 26,
2022 unless sooner terminated by the board of directors or a committee appointed
by the board of directors.
Other
pension and retirement plans
We do not
have any other pension or retirement plans, other than a 401(k) plan for our
U.S. employees.
Board
Composition
Our board
of directors currently consists of eight members: Dr. Anderson,
Ms. Bertoglio, Mr. Breveglieri, Mr. Codella, Dr. Ferro, Dr.
Nadler, Mr. Sweeney and Dr. Zambon. Dr. Anderson,
Ms. Bertolglio, Mr. Breveglieri, Dr. Nadler, Mr. Sweeney and Dr. Zambon
have never been employed by us or any of our subsidiaries and are independent
directors. FinSirton also agreed to vote its shares in favor of
electing one person designated by Sigma Tau Finanziaria S.p.A. Mr.
Codella is the designee of Sigma Tau. We do not have any agreements
with any of our directors that provide for benefits upon termination of
employment, although under Italian law, if directors are removed by the vote of
shareholders at an ordinary shareholders’ meeting prior to the end of their term
without cause, they may have a claim for damages against us. These
damages may include, but are not limited to, compensation that would otherwise
have been paid to the director for the remainder of his or her term and damage
to his or her reputation.
Our
Compensation Committee recommends the compensation of our directors to our
shareholders and our board of directors. Under Italian law, our
shareholders determine the compensation of our directors relating to basic board
service, such as annual fees for serving on the board and fees for attending
board meetings. Our directors then determine “additional”
compensation for our directors for serving on the various board committees and
attending committee meetings. Our Compensation Committee, board of
directors and shareholders have approved the following director compensation for
the term from our April 2008 ordinary shareholder meeting to our April 2009
shareholder meeting. Each director (other than Dr. Ferro) would receive, as
applicable:
|
|
·
|
€20 thousand
per year for being a member of the
board;
|
|
|
·
|
€2
thousand for each board meeting
attended;
|
|
|
·
|
an
additional €3 thousand for each board meeting attended in person that is
held outside of the continent in which the director resides or that
requires travel for more than 5 hours from his or her
residence;
|
|
|
·
|
an
additional €1 thousand for each board meeting attended from May 2008 to
May 2009 to the extent such board members served a term from April 2007 to
May 2008 (one time payment in 2008 for services provided in
2007).
|
|
|
·
|
an
additional €18 thousand per year for being the chairperson of the
audit committee;
|
|
|
·
|
€2 thousand
per committee meeting attended for the chairperson of the nominating and
corporate governance committee and the chairperson of the compensation
committee;
|
|
|
·
|
€1
thousand per committee meeting attended for the other members of the
nominating and corporate governance committee and the compensation
committee;
|
|
|
·
|
€4 thousand
per committee meeting attended for all members of the audit committee,
including the chairperson;
|
|
|
·
|
options
to purchase ordinary shares calculated based on a Black Scholes analysis
using the fair market value of our ADSs on the date of grant and an
economic value of $38
thousand.
|
|
|
·
|
options
to purchase 6,846 ordinary shares per year to the chairperson of the
clinical committee and options to purchase 4,108 shares per year to the
other members of the clinical committee;
and
|
|
|
·
|
€4
thousand per committee meeting attended for all members of the clinical
committee, including the
chairperson.
|
Each of
our non-employee directors (other than Dr. Nadler) receives an option to
purchase 10,000 ordinary shares upon initial election to the board of
directors. We granted Dr. Nadler additional cash compensation instead
of options to purchase ordinary shares upon his initial election to the board of
directors.
Board
Committees and Code of Ethics
Our board
of directors has established an audit committee, a compensation committee and a
nominating and corporate governance committee.
Audit Committee. Our audit
committee consists of Ms. Bertoglio, Mr. Sweeney and Mr. Breveglieri, each
of whom is an independent director. Ms. Bertoglio and Mr. Sweeney are
both audit committee financial experts. The audit committee is a
standing committee of, and operates under a written charter adopted by, our
board of directors. The audit committee:
|
|
·
|
establishes
procedures for the receipt, retention and treatment of complaints received
by us regarding accounting, internal accounting controls or auditing
matters and the confidential, anonymous submission by our employees of
concerns regarding questionable accounting or auditing
matters;
|
|
|
·
|
has
the authority to engage independent counsel and other advisors, as it
determines necessary to carry out its duties, and determine the
compensation of such counsel and advisors, as well as its ordinary
administrative expenses; and
|
|
|
·
|
approves
related party transactions.
|
Our audit
committee directly oversees our independent accountants, including the
resolution of disagreements between management and the independent
accountants. As discussed below, under Italian law, our board of
statutory auditors also oversees our independent accountants with respect to our
Italian GAAP financial statements. Under Italian law, our
shareholders must be the party that appoints, terminates and determines the
compensation for our independent accountants, although our audit committee does
make recommendations on such matters to our board of directors, which in turn
makes recommendations to our shareholders.
Our board
of directors adopted an “Organizational and Operational Model” in compliance
with the provisions of Italian Legislative Decree of June 8, 2001 No. 231
(relating to the administrative responsibility of companies). This document
consists of:
|
|
·
|
operating procedures and reporting
system; |
|
|
·
|
internal supervisory and monitoring body;
and |
Compensation Committee. Our
compensation committee consists of Mr. Sweeney, Dr. Nadler and
Dr. Zambon, each of whom is an independent director. Under Nasdaq rules,
the compensation of a U.S. domestic company’s chief executive officer and all
other officers must be determined, or recommended to the board of directors,
either by a compensation committee comprised of independent directors or a
majority of the independent directors of its board of directors. Disclosure of
individual management compensation information is mandated by the Exchange Act
proxy rules, but foreign private issuers are generally exempt from that
requirement. Our compensation committee performs the duties required by the
rules of Nasdaq including making decisions and recommendations regarding
salaries, benefits, and incentive compensation for our executive officers. Part
of the compensation of our directors is fixed periodically by our shareholders
at their annual ordinary shareholder meetings. We disclose the aggregate
compensation of our executive officers and directors in our Exchange Act
reports, but not individual compensation of those officers or
directors.
Nominating and Corporate Governance
Committee. Our nominating and corporate governance committee consists of
Ms. Bertoglio, Mr. Breveglieri and Dr. Anderson, each of whom is an independent
director. Under Nasdaq rules, the directors of a U.S. domestic company must be
either selected or recommended for the board of directors’ selection by either a
nominating committee comprised solely of independent directors or by a majority
of the independent directors. Under Italian law, directors may also be nominated
by our shareholders. Our nominating and corporate governance committee performs
the duties required by Nasdaq, including assisting the board of directors in
fulfilling its responsibilities by:
|
|
·
|
identifying
and approving individuals qualified to serve as members of our board of
directors;
|
|
|
·
|
selecting
director nominees for our annual meetings of
shareholders;
|
|
|
·
|
evaluating
our board’s performance; and
|
|
|
·
|
developing
and recommending to our board corporate governance guidelines and
oversight with respect to corporate governance and ethical
conduct.
|
Our
shareholders are able to nominate directors other than those nominated by the
nominating committee.
Clinical
Committee. Our clinical committee consists of Dr. Nadler, Dr.
Anderson and Dr. Zambon. Our clinical committee assists the board of
directors in fulfilling its oversight responsibilities with respect to clinical
and regulatory matters. The clinical committee’s primary purposes are
to:
|
|
·
|
review management’s design and execution of
clinical trials; |
|
|
·
|
provide input and advice to management
regarding the same; and |
|
|
·
|
periodically update the rest of the board of
directors regarding the company’s performance of the clinicaltrials and
the committee’s advice regarding the
same. |
Other Committees. Our board
of directors may establish other committees as it deems necessary or appropriate
from time to time, including, but not limited to, an executive
committee.
Board
of Statutory Auditors
Under
Italian law, in addition to electing our board of directors, our shareholders
also elect a board of statutory auditors. The statutory auditors are elected for
a term of three years, may be reelected for successive terms and may be removed
only for cause and with the approval of a competent court. Each member of the
board of statutory auditors must provide certain evidence that he or she is
qualified to act in that capacity under Italian law, and that he or she meets
certain professional standards. The board of statutory auditors is required to
verify that we comply with applicable law and our bylaws, respect the principles
of correct administration and maintain adequate organizational structure,
internal controls and administrative and accounting system, and oversees our
independent accountants with respect to our Italian GAAP financial
statements.
The
following table sets forth the names of the three members of our board of
statutory auditors and the two alternate statutory auditors and their respective
positions, as of the date of this annual report. The current board of statutory
auditors was elected on April 28, 2006 for a term that ends at the date of the
ordinary shareholders’ meeting to approve our 2008 annual financial
statements.
|
Name
|
|
Position
|
|
Giorgio
Iacobone
|
|
Chairman
|
|
Carlo
Ciardiello
|
|
Member
|
|
Augusto
Belloni
|
|
Member
|
|
Domenico
Ferrari
|
|
Alternate
|
|
Romano
Chiapponi
|
|
Alternate
|
Mr.
Iacobone and Mr. Belloni also serve as members of the board of statutory
auditors of Sirton.
In 2005,
our board of statutory auditors met five times and attended four board of
directors meetings and two shareholders meetings. In 2006, they met
five times and attended nine board of director meetings and six shareholder
meetings. In 2007, they met six times and attended six board of
director meetings and one shareholder meeting. In 2008, they met
eight times and attended thirteen board of director meetings and one shareholder
meeting. In 2008, we accrued €68 thousand as compensation for their
service as our board of statutory auditors.
Indemnification
of Directors and Executive Officers and Limitation of Liability
We have
entered into indemnification agreements with each of our directors and executive
officers which may, in some cases, be broader than the specific indemnification
provisions contained in Italian law.
At
present, there is no pending litigation or proceeding involving any of our
directors, officers, employees, or agents where indemnification by us will be
required or permitted and we are not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
We have
purchased directors’ and officers’ liability insurance, including liabilities
arising under the Securities Act, and intend to maintain this insurance in the
future.
The table
below shows the number, activity and geographic location of our permanent
employees as of December 31, 2006, 2007 and 2008. All of our employees are in
Italy, except for four individuals, including Gary Gemignani, our Executive Vice
President and Chief Financial Officer, who are based in the United
States.
|
|
|
As
of December 31,
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Administration,
accounting, finance, business development
|
|
|
12 |
|
|
|
18 |
|
|
|
18 |
|
|
R&D,
clinical, regulatory
|
|
|
20 |
|
|
|
23 |
|
|
|
17 |
|
|
Production,
quality assurance control
|
|
|
33 |
|
|
|
39 |
|
|
|
39 |
|
|
Total
|
|
|
65 |
|
|
|
80 |
|
|
|
74 |
|
Italian
law imposes certain confidentiality obligations on our employees and provides
that either any intellectual property created by them while in our employ belong
to us or we have a right of option on it, although we must compensate them for
such intellectual property creation. Our employees in Italy are subject to
national collective bargaining agreements. National agreements are negotiated
collectively between the national associations of companies within a given
industry and the respective national unions. National agreements provide a basic
framework on working conditions, including, among other things, pay, security
and other provisions. Our employees, other than executive officers in Italy,
were subject to a collective bargaining agreement that was renewed on May 10,
2005 and expires on December 31, 2009. Our executive officers in
Italy are subject to a collective bargaining agreement that was renewed on
November 20, 2004 and expires on December 31, 2008. We believe that we
maintain satisfactory relations with our employees.
Under
Italian law, employees are entitled to amounts based on salary and years of
service upon leaving their employment, even if we terminate them for cause or
they resign. We had a liability for these termination indemnities of €655
thousand at
December 31, 2008. Under Italian law, we make social security and
national healthcare contributions for our employees to the Italian government,
which provides pension and healthcare insurance benefits.
Dr. Laura
Ferro and members of her family control FinSirton. As a result, Dr. Ferro
may be deemed to beneficially own FinSirton’s shares of our company.
Dr. Ferro disclaims such beneficial ownership. Dr. Ferro also
holds options that, within 60 days of March 31, 2009, are vested as to 394,894
shares.
Mr. Gary
Gemignani, our Chief Financial Officer, and Dr. Massimo Iacobelli, our
Scientific Director, hold options that, within 60 days of March 31, 2009, are
vested as to 180,443 and 209,351, respectively.
To our
knowledge, none of our other directors and officers listed herein owned one
percent or more of our ordinary shares at March 31, 2008. See “Item
7, Major Shareholders and Related Party Transactions.”
The
following table shows information with respect to the beneficial ownership of
our ordinary shares as of March 31, 2009 by:
|
|
·
|
each
person, or group of affiliated persons, who we know owns beneficially 5%
or more of our ordinary shares,
and
|
|
|
·
|
all of our directors and executive officers as
a group. |
At March
31, 2009, we had 14,956,317 ordinary shares outstanding. Except as
indicated in the footnotes to this table and subject to community property laws
where applicable, the persons named in the table have sole voting and investment
power with respect to all ordinary shares shown as beneficially owned by them.
Beneficial ownership and percentage ownership are determined in accordance with
the rules of the SEC. Ordinary shares underlying our convertible securities that
are exercisable within 60 days from March 31, 2009 are deemed outstanding
for computing the amount and percentage owned by the person or group holding
such convertible securities, but are not deemed outstanding for computing the
percentage owned by any other person or group.
|
|
|
Number
of Shares
Beneficially
Owned
|
|
|
Percent
|
|
|
Principal
Shareholders
|
|
|
|
|
|
|
|
Laura
Ferro (1)
|
|
|
4,144,894 |
|
|
|
27
|
% |
|
FinSirton
S.p.A.(2)
|
|
|
3,750,000 |
|
|
|
25.1
|
% |
|
Paolo
Cavazza (3)
|
|
|
2,685,329 |
|
|
|
17.9
|
% |
|
Claudio
Cavazza (4)
|
|
|
2,472,002 |
|
|
|
16.5
|
% |
|
Sigma
Tau Finanziaria S.p.A. (5)
|
|
|
2,384,335 |
|
|
|
15.9
|
% |
|
Defiante
Farmaceutica, L.D.A. (6)
|
|
|
1,084,335 |
|
|
|
7.2
|
% |
|
All
directors and executive officers as a group (12 persons)
(7)
|
|
|
4,870,306 |
|
|
|
32.6
|
% |
|
(1)
|
Dr.
Laura Ferro, who is our Chief Executive Officer, President and one of our
directors, may be deemed to share voting or dispositive control with
FinSirton over the ordinary shares in Gentium that FinSirton beneficially
owns. Dr. Ferro disclaims beneficial ownership of such
shares.
|
|
(2)
|
Address
is Piazza XX Settembre 2, 22079 Villa Guardia (Como),
Italy. The board of directors of FinSirton, including Dr. Laura
Ferro, may be deemed to share voting or dispositive control with FinSirton
over the ordinary shares in Gentium that FinSirton beneficially
owns. The members of the board of directors of FinSirton,
including Dr. Ferro, disclaim beneficial ownership of such
shares. FinSirton entered into a loan agreement with Intesa San
Paolo S.p.A. on June 12, 2007, and in connection therewith, pledged
700,000 and 2,300,000 ordinary shares in our company to IntesaSanpaolo
S.p.A. to secure repayment of such
loan.
|
|
(3)
|
Based
upon information obtained from a Schedule 13D filed with the SEC, as
amended. Address is Via Tesserte, 10, Lugano,
Switzerland. Consists of (i) 1,300,000 outstanding ADSs held by
Sigma Tau Finanziaria S.p.A., (ii) 1,011,001 outstanding ADSs held by
Defiante Farmaceutica L.d.A., (iii) 73,334 ordinary shares issuable upon
exercise of warrants currently exercisable held by Defiante; and (iv)
300,994 outstanding ADSs held by Chaumiere Consultadoria e Servicos
S.A. Mr. Paolo Cavazza owns, directly and indirectly, 40% of
the outstanding equity of Sigma Tau Finanziaria S.p.A. and so may be
deemed to beneficially own the shares beneficially owned by Sigma Tau
Finanziaria S.p.A. In connection with a purchase by Sigma Tau
Finanziaria S.p.A. of 800,000 ordinary shares from FinSirton in
April 2005, FinSirton agreed that, if the per share price in a sale
by our shareholders of all of our ordinary shares is less than $5.00 per
share, FinSirton will transfer to Sigma Tau Finanziaria S.p.A. an
additional number of ordinary shares equal to (x) $3.2 million divided by
the product determined by multiplying (i) 0.8 by (ii) the per
share sale price less (y) 800,000 ordinary shares. Sigma
Tau Finanziaria S.p.A. owns, directly and indirectly, 100% of the
outstanding equity of Defiante and so may be deemed to be the beneficial
owner of the outstanding ordinary shares and ADSs held by Defiante and
issuable upon exercise of Defiante’s warrants. Mr. Paolo
Cavazza and members of his family indirectly own Chaumiere and so may be
deemed to beneficially own the ADSs beneficially owned by
Chaumiere.
|
|
(4)
|
Based
upon information obtained from a Schedule 13G filed with the SEC, as
amended. Address is Via Sudafrica, 20, Rome, Italy
00144. Consists of (i) 1,300,000 outstanding ADSs held by Sigma
Tau Finanziaria S.p.A., (ii) 1,011,001 outstanding ADSs held by Defiante
Farmaceutica L.d.A., (iii) 73,334 ordinary shares issuable upon exercise
of warrants currently exercisable held by Defiante and (iv) 87,667 ADSs
held by Inverlochy Consultadoria e Servicos LdA. Mr. Claudio
Cavazza owns, directly and indirectly, 60% of the outstanding equity of
Sigma Tau Finanziaria S.p.A. and so may be deemed to beneficially own the
shares beneficially owned by Sigma Tau Finanziaria S.p.A. In
connection with a purchase by Sigma Tau Finanziaria S.p.A. of 800,000
ordinary shares from FinSirton in April 2005, FinSirton agreed that,
if the per share price in a sale by our shareholders of all of our
ordinary shares is less than $5.00 per share, FinSirton will transfer to
Sigma Tau Finanziaria S.p.A. an additional number of ordinary shares equal
to (x) $3.2 million divided by the product determined by multiplying
(i) 0.8 by (ii) the per share sale price less (y) 800,000
ordinary shares. Sigma Tau Finanziaria S.p.A. owns, directly
and indirectly, 100% of the outstanding equity of Defiante and so may be
deemed to be the beneficial owner of the outstanding ordinary shares and
ADSs held by Defiante and issuable upon exercise of Defiante’s
warrants. Inverlochy Consultadoria e Servicos, LdA is
indirectly wholly-owned by Mr. Claudio Cavazza. By reason of
such relationship, Mr. Cavazza may be deemed to beneficially own the ADSs
held by Inverlochy Consultadoria e Servicos,
LdA.
|
|
(5)
|
Based
upon information obtained from a Schedule 13D filed with the SEC, as
amended. Address is Via Sudafrica 20, 00144 Roma, Italy.
Consists of (i) 1,300,000 outstanding ADSs held by Sigma Tau Finanziaria
S.p.A., (ii) 1,011,001 outstanding ADSs held by Defiante and (iii) 73,334
ordinary shares issuable upon exercise of warrants currently exercisable
held by Defiante. Sigma Tau Finanziaria S.p.A. owns, directly
and indirectly, 100% of the outstanding equity of Defiante and so may be
deemed to be the beneficial owner of the outstanding ordinary shares and
ADSs held by Defiante and issuable upon exercise of Defiante’s warrants.
The board of directors of Sigma Tau Finanziaria S.p.A. may be deemed to
share voting or dispositive power with Sigma Tau Finanziaria S.p.A. over
the ordinary shares in our company that Sigma Tau Finanziaria S.p.A.
beneficially owns, and so may be deemed to beneficially own the ordinary
shares that Sigma Tau Finanziaria S.p.A. beneficially owns. In
connection with a purchase by Sigma Tau Finanziaria S.p.A. of 800,000
ordinary shares from FinSirton in April 2005, FinSirton agreed that,
if the per share price in a sale by our shareholders of all of our
ordinary shares is less than approximately $5.00 per share, FinSirton will
transfer to Sigma Tau Finanziaria S.p.A. an additional number of ordinary
shares equal to (x) $3.2 million divided by the product determined by
multiplying (i) 0.8 by (ii) the per share sale price less (y) 800,000
ordinary shares.
|
|
(6)
|
Based
upon information obtained from a Schedule 13G filed with the SEC, as
amended. Address is Rua dos Ferreios, 260, Funchal-Madeira
(Portugal) 9000-082. Includes 73,334 ordinary shares issuable
upon exercise of warrants currently
exercisable.
|
(7) Assumes that Dr. Laura Ferro is deemed
to beneficially own the ordinary shares beneficially owned by FinSirton and
includes 1,120,306 ordinary shares issuable upon exercise
of options currently exercisable and exercisable within 60 days of March 31,
2009.
As of
March 31, 2009, there were no record holders of our ordinary shares located in
the United States. There were no changes in percentage ownership by the holders
listed above since January 1, 2005 except for the following.
·
FinSirton
sold 450,000 of our ordinary shares that it owned to third parties in January
2005 and an additional 800,000 shares in April 2005 to Sigma Tau Finanziaria
S.p.A. Mr. Paolo Cavazza and Mr. Claudio Cavazza may be deemed to
have acquired the ordinary shares acquired by Sigma Tau Finanziaria
S.p.A.
·
In
connection with our initial public offering in June 2005, Defiante acquired
359,505 ordinary shares upon the exercise of our Series A notes, and Mr. Paolo
Cavazza, Mr. Claudio Cavazza and Sigma Tau Finanziaria S.p.A. may be deemed to
have acquired such shares.
·
All
shareholders of our company prior to our initial public offering were
substantially diluted by the shares issued in that public offering.
·
All
shareholders of our company prior to our October 2005 private placement were
substantially diluted by the shares issued in that private
placement.
·
In our
October 2005 private placement, Chaumiere Consultadoria e Servicos S.A. acquired
152,376 ordinary shares. Mr. Paolo Cavazza may be deemed to have
acquired the ordinary shares acquired by Chaumiere Consultadoria e Servicos
S.A.
·
All
shareholders of our company prior to our June 2006 private placement
substantially diluted by the shares issued in that private
placement.
·
All
shareholders of our company prior to our February 2007 private placement were
substantially diluted by the shares issued in that private
placement.
·
In our
February 2007 private placement, Chaumiere acquired 87,667 ordinary shares,
Defiante acquired 87,666 ordinary shares and Inverlochy acquired 87,667 ordinary
shares. Paolo Cavazza may be deemed to have acquired the ordinary
shares acquired by Chaumiere. Paolo Cavazza, Claudio Cavazza
and Sigma Tau Finanziaria S.p.A. may be deemed to have acquired the ordinary
shares acquired by Defiante. Claudio Cavazza may be deemed to have
acquired the ordinary shares acquired by Inverlochy.
·
In June
2007, Biomedical Value Fund, L.P. sold 227,447 ordinary shares to Sigma-Tau
Finanziaria S.p.A. and 304,468 ordinary shares to Defiante, and Biomedical
Offshore Value Fund, Ltd. sold 272,553 ordinary shares to Sigma-Tau Finanziaria
S.p.A. and 259,362 ordinary shares to Defiante.
·
From July
2005 to May 2008, our company issued stock option awards to our officers and
directors. 1,120,306 ordinary shares are issuable upon exercise of these stock
option awards within 60 days of March 31, 2009.
The
holders of 5% or more of our outstanding ordinary shares do not have different
voting rights than other holders of our ordinary shares. Dr. Ferro and her
family, through their ownership of 100% of the outstanding ordinary shares of
FinSirton, may effectively control all decisions and actions that must be made
or taken by holders of our ordinary shares by virtue of the fact that FinSirton
beneficially owned approximately 27% of our outstanding ordinary shares at March
31, 2009.
Change
of control arrangements
There are
no arrangements of which we are aware that could result in a change of control
over us other than those described above and the following.
|
·
|
We
and certain parties are subject to certain registration rights, as
described below.
|
|
·
|
FinSirton
has agreed to vote its ordinary shares in our company in favor of electing
a nominee to our board of directors, as described
below.
|
Registration
Rights
Holders
of shares issued upon conversion of Series A notes and
warrants
We have
registered the resale of 502,334 ordinary shares pursuant to an investor rights
agreement with the purchasers of our Series A notes and related warrants with
respect to the ordinary shares issued upon conversion of the Series A notes and
issuable upon exercise of the warrants. The agreement provides that,
beginning 270 days after the effective date of the registration statement
relating to our initial public offering, the holders of a majority of the
ordinary shares that were issued upon conversion of our Series A notes or
exercise of our warrants would be entitled to demand that we register their
shares for resale under the Securities Act of 1933, as amended. We are not
required to effect more than three registrations for these holders under these
demand registration rights. These demand rights terminated on June 21, 2008. No
more than two of the demand registrations may be effected using a Form F-1
registration statement. The securities registered pursuant to F-1 registrations
must have an aggregate offering price of $2.5 million and any short-form or
Form F-3 registrations must have an aggregate offering price of
$1.0 million.
The
investor rights agreement also provides that if we propose to register any of
our securities under the Securities Act, either for our own account or for the
account of other shareholders exercising registration rights, the holders of
warrants or ordinary shares received upon conversion of the Series A notes or
warrants are entitled to notice of the registration and are entitled to include
such ordinary shares in any such registration. These “piggyback rights” are
subject to conditions and limitations, among them a minimum aggregate offering
price of $1.0 million each and the right of the underwriters of an offering to
limit the number of ordinary shares included in the registration. These
piggyback rights terminated on June 21, 2008.
We have
registered ADSs representing such ordinary shares, in addition to the ordinary
shares themselves. We are generally required to bear all of the expenses of
these registrations, except underwriting discounts and selling commissions.
Registration of these ADSs results in those ADSs becoming freely tradable
without restriction under the Securities Act.
Alexandra
Global Master Fund Ltd., Generation Capital Associates and Sigma Tau Finanziaria
S.p.A.
We have
registered the resale of 1,250,000 ordinary shares pursuant
to an investor rights agreement with Alexandra Global Master Fund Ltd. and
Generation Capital Associates with respect to an aggregate of 450,000 ADSs held
by those parties and with Sigma Tau Finanziaria S.p.A. with respect to 800,000
ordinary shares held by Sigma Tau Finanziaria S.p.A. Each investor rights
agreement provides that beginning six months after the effective date of the
registration statement relating to our initial public offering, the holders of
the majority of the ordinary shares covered by that agreement would be entitled
to demand that we register their shares for resale under the Securities Act.
These “demand rights” are subject to limitations described in the agreements. We
are not required to effect more than two registrations under these demand
registration rights pursuant to each agreement. These demand rights terminated
on June 21, 2008. The securities registered pursuant to F-1 registrations must
have an aggregate offering price of $2.0 million and any short-form or
Form F-3 registrations must have an aggregate offering price of $1.0
million.
Each
investor rights agreement also provides that if we propose to register any of
our securities under the Securities Act, either for our own account or for the
account of other shareholders exercising registration rights, the holders are
entitled to notice of the registration and are entitled to include ordinary
shares in any such registration. These “piggyback rights” are subject to
conditions and limitations, among them a minimum aggregate offering price of
$1.0 million each and the right of the underwriters of an offering to limit the
number of shares included in the registration. These piggyback rights terminated
on June 21, 2008.
We have
registered ADSs representing such ordinary shares in addition to the ordinary
shares themselves. We are generally required to bear all of the expenses of
these registrations, except underwriting discounts and selling commissions.
Registration of these ADSs results in those ADSs becoming freely tradable
without restriction under the Securities Act.
Underwriters
of our initial public offering
We have
registered the resale of 151,200 ordinary shares pursuant to warrants issued to
the underwriters of our initial public offering. Each purchase option
provides that, beginning one year after the effective date of the registration
statement relating to our initial public offering and ending four years after
the effective date of the registration statement relating to our initial public
offering, the holders of a majority of all of the ordinary shares issuable upon
exercise of the purchase options may, on one occasion, demand that we register
for resale all or any portion of the purchase options and all of the ordinary
shares issuable upon exercise of the purchase options and kept the registration
statement effective for at least six consecutive months.
Each
purchase option also provides that if we propose to register any of our
securities under the Securities Act, either for our own account or for the
account of other shareholders exercising registration rights, the holders are
entitled to notice of the registration and are entitled to include ordinary
shares in any such registration, which we must keep effective for at least six
consecutive months. These “piggyback rights” commence one year after the
effective date of the registration statement relating to our initial public
offering and terminate on seven years after the effective date of the
registration statement relating to our initial public offering.
We have
registered ADSs representing such ordinary shares in addition to the ordinary
shares themselves. We are generally required to bear all of the expenses of
these registrations, except underwriting discounts and selling commissions.
Registration of these ADSs results in those ADSs becoming freely tradable
without restriction under the Securities Act.
October
2005 private placement participants
We have
registered the resale of 2,264,643 ordinary shares pursuant
to a registration rights agreement between us and the purchasers of our ordinary
shares and warrants in our October 2005 private placement. We must
keep the registration statement effective until all of the securities registered
have been sold or may be sold without volume restrictions pursuant to Rule
144.
We have
registered ADSs representing such ordinary shares in addition to the ordinary
shares themselves. We are generally required to bear all of the expenses of
these registrations, except underwriting discounts and selling commissions.
Registration of these ADSs results in those ADSs becoming freely tradable
without restriction under the Securities Act.
June
2006 private placement participants
We have
registered the resale of 2,409,971 ordinary shares pursuant to a registration
rights agreement between us and the purchasers of our ordinary shares and
warrants in our June 2006 private placement. We must keep the
registration statement effective until all of the securities registered have
been sold or may be sold without volume restrictions pursuant to Rule
144.
We have
registered ADSs representing such ordinary shares in addition to the ordinary
shares themselves. We are generally required to bear all the expenses
of these registrations, except underwriting discounts and selling
commissions. Registration of these ADSs results in those ADSs being
freely tradable without registration under the Security Act.
February
2007 private placement participants
We have
registered the resale of 2,354,000 ordinary shares pursuant to a registration
agreement between us and the purchasers of our ordinary shares in our February
2007 private placement. We must keep the registration statement
effective until all of the securities registered have been sold or may be sold
without volume restrictions pursuant to Rule 144.
We have
registered ADSs representing such ordinary shares in addition to the ordinary
shares themselves. We are generally required to bear all the expenses
of these registrations, except underwriting discounts and selling
commissions. Registration of these ADSs results in those ADSs being
freely tradable without registration under the Security Act.
Other
than described below, between January 1, 2005 and the date of this report,
we have not entered into or proposed to enter into any transaction or loan with
any affiliate of ours, any of our directors, executive officers, holders of 10%
or more of our ordinary shares, any member of their immediate family or any
enterprise over which any such person is able to exercise a significant
influence other than our employment agreements with our executive
officers.
Control
by Dr. Ferro’s Family
Dr. Laura
Ferro, who is our Chief Executive Officer and President and one of our
directors, and members of her family control FinSirton. As a result,
Dr. Ferro and her family indirectly control approximately 27% of our
outstanding ordinary shares at March 31, 2009.
Agreements
with various entities
On
January 1, 2005, we entered into a Commercial Lease Contract with FinSirton to
lease space for offices, laboratories and storage facilities. The
contract expires on December 31, 2010. The area leased is
approximately 1,750 square meters in size. The contract provides for
an annual fee of €156 thousand which is updated each year on the basis of the
variation of the cost of living index.
On
January 1, 2005, we entered into a Commercial Lease Contract with Sirton to
lease space for laboratories and manufacturing of urokinase. This
contract expires on December 31, 2013. The area leased is 100 square
meters in size. The contract provides for an annual fee of €8
thousand which is updated each year on the basis of variation of the cost of
living index.
On
January 2, 2006, we entered into a Service Agreement with FinSirton pursuant to
which FinSirton supplies us with general management and personnel administration
services. This agreement was amended in 2007 and is renewable
automatically each year barring cancellation of the agreement, which requires
notice one month prior to expiration. Starting from January 2007, we
pay FinSirton €975 per employee per year for personnel services and
€54 thousand per year for general management services. This
agreement allows us to revise the payroll service at €195 per employee per year
if we manage internally some of the payroll activities. In 2008, the
agreement was renewed only for general service management services. The
agreement terminated on December 31, 2008.
On
January 2, 2006, we entered into a Service Agreement with Sirton pursuant to
which Sirton supplies us with a number of business services including quality
control, analytical assistance for research and development, engineering
services, general and car rental services, utilities services, and maintenance
services. This agreement was amended in 2007 and 2008 and is
renewable automatically each year barring cancellation of the agreement, which
requires notice one month prior to expiration.
On
January 1, 2007, we entered into a Commercial Lease Contract with FinSirton to
lease additional space for offices, manufacturing space, laboratories and
storage facilities. This contract expires on December 31,
2013. The area leased is approximately 600 square meters in
size. The contract provides for an annual fee of €30 thousand which
is updated each year on the basis of variation of the cost of living
index.
On
January 2, 2006, we entered into a Contract to Supply Active Ingredients with
Sirton, pursuant to which we sell urokinase, calcium heparin, defibrotide,
sulglicotide and glucidamine to Sirton, which Sirton uses to produce specialty
pharmaceutical products. The agreement automatically renews each year
unless one party gives written notice of its intent to terminate the agreement
at least one month prior to the annual termination date. On December 1, 2007, we
amended this agreement to delete references to defibrotide.
On
November 30, 2007, we entered into a Manufacturing Agreement with Sirton,
pursuant to which Sirton will manufacture finished ampoules and capsules of
defibrotide from the raw ingredient. The agreement may be terminated
by either party upon 60 days notice. We terminated this agreement in
November 2008. On February 2, 2009 we executed a technical services
transfer agreement with Patheon S.p.A., whereby Patheon S.p.A. would take over
the manufacture of the finished ampoules and capsules of
defibrotide.
Three of
the participants in our February 2007 private placement are affiliated with
other shareholders, one of our commercial partners and one of our
directors:
·
Defiante
Farmaceutica, L.d.A. purchased 87,666 ordinary shares in the February 2007
private placement. Defiante also converted its Series A notes into
359,505 ordinary shares at the consummation of our initial public offering and
holds warrants issued in connection with the Series A notes to purchase 73,334
ordinary shares;
·
Chaumiere
Consultadoria e Servicos SDC Unipessoal LdA purchased 87,667 ordinary shares in
the February 2007 private placement. Chaumiere also purchased which
purchased 152,376 ordinary shares and warrants to purchase 60,951 ADSs in our
October 2005 private placement; and
·
Inverlochy
Consultadoria & Servicos LdA purchased 87,667 ordinary shares in the
February 2007 private placement.
Each of
these investors is an affiliate of Sigma Tau Finanziaria S.p.A., which owns
1,300,000 ordinary shares. Pursuant to a voting agreement between Sigma-Tau
Finanziaria S.p.A. and FinSirton, a designee of Sigma-Tau Finanziaria S.p.A.,
Marco Codella, was elected to be a member of our board of directors upon
consummation of our initial public offering in June 2005. Mr. Codella
is the Chief Financial Officer of Sigma Tau Industrie Farmaceutiche Reunite
S.p.A., which is a wholly-owned subsidiary of Sigma-Tau Finanziaria
S.p.A. Each of these three investors is also an affiliate of
Sigma-Tau Pharmaceuticals, Inc., which is a party to a License and Supply
Agreement with us pursuant to which we have licensed the right to market
defibrotide to treat VOD in North America, Central America and South America to
Sigma-Tau Pharmaceuticals, Inc. and pursuant to which Sigma-Tau
Pharmaceuticals, Inc has agreed to purchase defibrotide for this use from us.
This agreement is described in more detail in “Business—Our Strategic
Alliances—License and Distribution Agreements.” Sigma-Tau Pharmaceuticals, Inc.
also has a right of first refusal to market defibrotide for certain other uses
in North America, Central America and South America.
Indemnification
Agreements
We have
entered into indemnification agreements with each of our directors and officers
containing provisions that may require us to indemnify them against liabilities
that may arise by reason of their status or service as directors or officers and
to advance their expenses incurred as a result of any proceeding against them.
However, we will not indemnify directors or officers with respect to liabilities
arising from willful misconduct of a culpable nature.
Not
applicable.
Please
refer to Item 18, “Financial Statements” of this annual
report.
Export
Sales
Not
applicable.
Legal
Proceedings
In August 2008, a legal proceeding was
commenced against our Board of Directors and Board of Statutory Auditors in the
Court of Como (Italy) seeking to prevent a proposed financing transaction from
proceeding by alleging misconduct by our Board of Directors and Board of
Statutory Auditors. The action was brought by Sigma-Tau Finanziaria S.p.A. and a
related entity, which together with their affiliates beneficially hold
approximately 18% of our ordinary shares.
While the Court of Como initially issued
an interim measure ordering that the proposed transaction not proceed, on
October 2, 2008, the Court of Como issued a decision terminating this legal
proceeding, citing the lack of any damages, and vacated the interim order
previously issued by the Court.
As of the
date of this report, we are not a party to any legal or governmental proceeding
that is pending or, to our knowledge, threatened or contemplated against our
company that, if determined adversely to us, would have a materially adverse
effect, either individually or in the aggregate, on the business, financial
condition or results of operations.
Dividend
Policy
We have
never declared or paid any cash dividends on our ordinary shares. We currently
intend to retain all available funds to support our operations and to finance
the growth and development of our business. We are not subject to any
contractual restrictions on paying dividends. Under Italian law and our bylaws,
our payment of any annual dividend must be proposed by our board of directors
and is subject to the approval of our shareholders at the annual ordinary
shareholders’ meeting. Before dividends may be paid out of our profit in any
year, we must allocate an amount equal to 5% of the net profit to our legal
reserve until such reserve is at least equal to 20% of the aggregate par value
of our issued shares, which we call our “capital.” If a loss in our capital
occurs, we may not pay dividends until the capital is reconstituted or reduced
by the amount of such losses. We may distribute reserves deriving from available
retained earnings from prior years, provided that after such payment, we will
have a legal reserve at least equal to the legally required minimum of 20% of
the capital. We may not approve or pay dividends until this minimum is met. If
the minimum is met, the board of directors proposes the issuance of a dividend
and the shareholders approve that issuance, the shareholders’ resolution will
specify the manner and the date for their payment..
Any
dividend we declare will be paid to the holders of ADSs, subject to the terms of
the deposit agreement, to the same extent as holders of our ordinary shares,
less the fees and expenses payable under the deposit agreement. Any dividend we
declare will be distributed by the depositary to the holders of the ADSs. Cash
dividends on our ordinary shares, if any, will be paid in U.S.
dollars.
If we
issue debt securities in the future, until those debt securities are repaid in
full, we may not declare dividends if it results in the aggregate of the capital
and reserves being less than half of the outstanding amount of the
debt.
The board
of directors may not approve interim dividends at times between our annual
ordinary shareholders’ meetings. Any future determination relating to dividend
policy will be made at the discretion of our board of directors and will depend
on a number of factors, including our future earnings, capital requirements,
financial condition, future prospects and other factors as the board of
directors may deem relevant.
Under
Italian law, Italian companies are required to supply to the Italian tax
authorities certain information regarding the identity of non-resident
shareholders in connection with the payment of dividends. Shareholders are
required to provide their Italian tax identification number, if any, or
alternatively, in the case of legal entities, their name, country of
establishment and address, or in the case of individuals, their name, address
and place and date of birth, or in the case of partnerships, the information
required for individuals with respect to one of their representatives. In the
case of ADSs owned by non-residents of Italy, we understand that the provision
of information concerning the depositary, in its capacity as holder of record of
the ordinary shares underlying the ADSs, will satisfy this requirement. However,
beneficial U.S. ADS holders are entitled to a reduction of the withholding taxes
applicable to dividends paid to them under the income tax convention for the
avoidance of double taxation currently in effect between the United States and
Italy (the “Income Tax
Convention”); provided, however, that conditions set out in the Income
Tax Convention are met. In order for you to benefit from that reduction, we are
required to furnish certain information concerning you to the Italian tax
authorities and, therefore any claim by you for those benefits would need to be
accompanied by the required information.
No
significant changes have occurred since the date of the most recent annual
financial statements.
Our ADSs
are listed on Nasdaq under the symbol “GENT.” Neither our ordinary
shares nor our ADSs are listed on a securities exchange outside the United
States. The Bank of New York is our depositary for purposes of
issuing the ADRs representing the ADSs. Each ADS represents one
ordinary share.
Trading
in our ADSs on the Nasdaq Global Market System commenced on May 16,
2006. Prior to this date, our ADSs were traded on the American Stock
Exchange, beginning June 16, 2005 and ending on May 15, 2006, the date we
de-listed. The following table sets forth, for each of the periods
indicated, the high and low closing prices per ADS as reported by the American
Stock Exchange and Nasdaq, as applicable.
|
|
|
|
|
| |
|
Price
Range of ADSs
|
|
| |
|
High
|
|
|
Low
|
|
|
2005
|
|
|
|
|
|
|
|
Second
Quarter (beginning June 16, 2005)
|
|
$ |
9.10 |
|
|
$ |
8.77 |
|
|
Third
Quarter
|
|
$ |
8.99 |
|
|
$ |
6.92 |
|
|
Fourth
Quarter
|
|
$ |
8.68 |
|
|
$ |
7.05 |
|
|
2006
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
13.25 |
|
|
$ |
7.85 |
|
|
Second
Quarter
|
|
$ |
19.76 |
|
|
$ |
12.17 |
|
|
Third
Quarter
|
|
$ |
15.49 |
|
|
$ |
12.95 |
|
|
Fourth
Quarter
|
|
$ |
22.74 |
|
|
$ |
17.01 |
|
|
Full
Year
|
|
$ |
22.74 |
|
|
$ |
7.85 |
|
|
2007
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
22.44 |
|
|
$ |
17.00 |
|
|
Second
Quarter
|
|
$ |
20.25 |
|
|
$ |
15.98 |
|
|
Third
Quarter
|
|
$ |
24.40 |
|
|
$ |
15.78 |
|
|
Fourth
Quarter
|
|
$ |
23.06 |
|
|
$ |
13.51 |
|
|
Full
Year
|
|
$ |
24.40 |
|
|
$ |
13.51 |
|
|
2008
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
13.98 |
|
|
$ |
6.36 |
|
|
Second
Quarter
|
|
$ |
7.60 |
|
|
$ |
3.41 |
|
|
Third
Quarter
|
|
$ |
4.29 |
|
|
$ |
1.62 |
|
|
Fourth
quarter
|
|
$ |
1.73 |
|
|
$ |
0.44 |
|
|
Full
Year
|
|
$ |
13.98 |
|
|
$ |
0.44 |
|
|
Month Ended
|
|
$ |
|
|
|
$ |
|
|
|
January
31, 2009
|
|
$ |
0.75 |
|
|
$ |
0.63 |
|
|
February
28, 2009
|
|
$ |
0.60 |
|
|
$ |
0.34 |
|
|
March
31, 2009 (through March 30, 2009)
|
|
$ |
0.90
|
|
|
$ |
0.33
|
|
The
closing price of the ADSs on Nasdaq on March 30, 2009 was $0.90.
Sources: American Stock Exchange and
the Nasdaq Stock Market
Not
applicable.
Our ADSs are listed on The Nasdaq
Global Market under the symbol “GENT.” Neither our ordinary shares
nor our ADSs are listed on a securities exchange outside the United
States.
Not
applicable.
Not
applicable.
Not
applicable.
Not
applicable.
Bylaws
The
following is a summary of certain information concerning our ordinary shares and
bylaws (Statuto) and of the Italian law provisions applicable to companies whose
shares are not listed in a regulated market in the European Union, as in effect
at the date of this annual report. The summary contains all the information that
we consider to be material regarding the shares but does not purport to be
complete and is qualified in its entirety by reference to our bylaws or Italian
law, as the case may be.
Under
Italian law, most of the procedures regulating our company other than those
provided for under, including certain rights of shareholders, are contained in
our bylaws as opposed to our articles of association. Amendments to
our bylaws requires approval at an extraordinary meeting of shareholders, as
described below.
In
January 2003, the Italian government approved a wide-ranging reform of the
corporate law provisions of the Italian Civil Code, which came into force on
January 1, 2004. On September 30, 2004, our shareholders approved a
number of amendments to our bylaws dictated or made possible by the 2003
corporate law reform. Our bylaws were also amended on April 28, 2005, November
29, 2005, April 28, 2006 and April 27, 2007. The following
summary takes into account the 2003 corporate law reform and the consequent
amendments to our bylaws.
General
As of
March 31, 2009 our issued and outstanding share capital consisted of 14,956,317
ordinary shares, par value €1 per share. The Euro currency was adopted in Italy
on January 1, 1999. The redenomination of the ordinary shares from
Italian Lira into Euro was approved by our shareholders on December 27,
2000. All the issued and outstanding shares are fully paid,
non-assessable and in registered form.
We are
registered with the Companies’ Registry of Como. Our registered
offices are located in Piazza XX Settembre n. 2, Comune di Villa Guardia,
frazione Civello, Como, Italy, registration number 02098100130.
Our
corporate purpose is the manufacturing, on behalf of our company and third
parties, and marketing in both Italy and other countries, of pharmaceutical
preparations, pharmaceutical products, raw materials for pharmaceutical and
para-pharmaceutical use and in general all and any products sold by pharmacies
or for hospital use, excluding in all cases the retail sale in Italy of
pharmaceutical preparations and products, medical articles and clinical
apparatuses in general and organic and inorganic products that may be used in
agrotechnical and/or zootechnical fields. We may also prepare and organize for
our own account or on behalf of third parties the documentation required for
obtaining authorizations for marketing pharmaceutical products in compliance
with the regulations in force in the countries of destination and be the holders
of those authorizations. We may grant and/or transfer licenses to Italian and
foreign enterprises or corporate bodies or acquire licenses for ourselves or
third parties. For each product contemplated by our corporate purposes, we may
carry out research programs in general and in particular technological,
chemical, pharmacotoxicological and clinical research programs in the hospital
and pharmaceutical field. We are generally authorized to take any commercial
transactions necessary or useful to achieve our corporate purpose, with the
exclusion of investment services and other financial or professional activities
reserved by Italian law to authorized entities.
Authorization
of shares
Our
shareholders may authorize the issuance of additional shares at any time at an
extraordinary shareholders’ meeting. However, the newly issued shares
may not be purchased before all the outstanding shares are entirely paid
for. On September 30, 2004, after a recommendation by our board of
directors, our shareholders approved a capital increase to allow for the
issuance of:
·
up to
1,560,000 ordinary shares available for grant under our share option
plans;
·
up to
1,335,000 ordinary shares upon the conversion of the Series A senior
convertible promissory notes;
·
up to
881,100 ordinary shares upon the exercise of the warrants; and
·
4,554,000
ordinary shares, including the shares underlying the ADSs in our initial public
offering (including ordinary shares underlying the underwriters’ purchase option
and the over-allotment option).
The
authorization for the ordinary shares authorized at this meeting is valid until
September 30, 2009, other than the 1,560,000 shares available for grant under
our Amended and Restated and 2004 Equity Incentive Plan and our Amended and
Restated Nonstatutory Plan and Agreement, whose authorization is valid until
September 30, 2019, and except that 1,353,297 of these ordinary shares were
authorized for issuance in connection with our issuance of the Series A notes
and related warrants, but were not actually issued, and so become unauthorized
and unissuable under Italian law.
On
November 29, 2005, after a recommendation by our board of directors, our
shareholders approved a capital increase of 713,518 ordinary shares to be
reserved for issuance upon exercise of the warrants we issued to the
participants in our October 2005 private placement and the placement agent for
that private placement.
On April
28, 2006, after a recommendation by our board of directors, our shareholders
approved an amendment to our bylaws that provides that our board of directors be
granted, pursuant to articles 2443 and 2420-ter of the Italian Civil
Code, with the power to:
·
increase
the capital of our company in cash, up to €90 million of par value, in one or
more transactions, and to reserve all or part of such amount for the exercise of
warrants issued by means of the same resolution of our board of directors
providing for the relevant capital increase;
·
issue
convertible bonds (including subordinated)and increase the capital of our
company, in one or more transactions, up to €10 million of par value, through
the issuance of ordinary shares reserved for the conversion of such convertible
bonds, and to reserve all or part of such convertible bonds for issuance upon
the exercise of warrants issued by means of the same resolution of our board of
directors providing for issuance of the convertible bonds; and
·
in each
case, exclude or limit the option right of our shareholders if our board of
directors determines that exclusion or limitation to be in the interest of our
company.
On May
31, 2006, pursuant to the powers granted by the shareholders’ meeting dated
April 28, 2006, our board of directors resolved upon a capital increase of
466,446 ordinary shares to be reserved for issuance upon exercise
of warrants. On December 15, 2006, pursuant to the powers
granted by the shareholders’ meeting dated April 28, 2006, our board of
directors resolved upon a capital increase of 151,200 ordinary shares to be
reserved for issuance upon exercise of warrants.
On
February 6, 2007, pursuant to the powers granted by the shareholders’ meeting
dated April 28, 2006, our board of directors resolved upon a capital increase of
2,354,000 ordinary shares to be subscribed within March 9, 2007, by “strategic
investors.”
On April
27, 2007, after a recommendation by our board of directors, our shareholders
approved a capital increase relating to 1,000,000 ordinary shares to be reserved
for issuance pursuant to exercise of options available for grant under our 2007
Stock Option Plan.
Form
and transfer of shares
Our
ordinary shares are not represented by share certificates; rather, they are
registered in book-entry form. All of our ordinary shares are issued through
Monte Titoli, an Italian clearinghouse and depositary, and held through various
participants, primarily financial institutions, on Monte Titoli’s system.
Transfers in our ordinary shares are processed on Monte Titoli’s system. We
update our shareholder book (libro soci) that we keep at
our corporate offices for Italian law purposes from time to time with the names
of the record shareholders based on information that will be provided to us by
Monte Titoli participants.
This
shareholder book is the controlling register of our record shareholders for
Italian law purposes, including for establishing the record shareholders for
shareholder meetings, declaration of dividends and stock splits or combinations.
A shareholders’ name must be entered on this shareholder book in order for the
shareholder to establish its rights against us.
There are
no limitations on the right to own or vote our ordinary shares, including by
non-Italian residents or foreign residents. However, owners of our
ordinary shares must establish an account with a Monte Titoli
participant. Owners of ADSs representing our ordinary shares are
subject to certain limitations as to their rights as explained in our risk
factors entitled, “Risks
Relating to Being an Italian Corporation – You may not have the same voting
rights as the holders of our ordinary shares and may not receive voting
materials in time to be able to exercise your right to vote,” “- You may not be
able to participate in rights offerings and may experience dilution of your
holdings as a result” and “- You may be subject to limitations on transfer of
your ADSs.” There are no provisions in our articles of
association or bylaws that would have an effect of delaying, deferring or
preventing a change of control of our company and that would operate only with
respect to a merger, acquisition or corporate restructuring involving our
company. There are no provisions in our bylaws governing the
ownership threshold above which shareholder ownership must be
disclosed. There are no provisions discriminating against any
existing or prospective holder of our ordinary shares as a result of such
shareholder owning a substantial number of our shares. There are no
sinking fund provisions or provisions providing for liability for further
capital calls by our company.
Dividend
rights
Our
payment of any annual dividend must be proposed by our board of directors and is
subject to the approval of our shareholders at the annual ordinary shareholders’
meeting. Before dividends may be paid out of our unconsolidated net income in
any year, we must allocate an amount equal to 5% of the Italian GAAP net income
to our legal reserve until such reserve is at least equal to 20% of the
aggregate par value of our issued shares, which we call our “capital.” If a loss
in our capital occurs, we may not pay dividends until the capital is
reconstituted or reduced by the amount of such losses. We may pay dividends out
of available retained earnings from prior years, provided that after such
payment, we will have a legal reserve at least equal to the legally required
minimum of 20% of the capital. We may not approve or pay dividends until this
minimum is met. If the minimum is met, the board of directors proposes the
issuance of a dividend and the shareholders’ resolution approves that issuance,
the shareholders’ resolution will specify the manner and the date for their
payment. Any dividends which shareholders do not collect within five years of
the date on which they become payable will be forfeited by those shareholders
and we will keep the money. The board of directors may not approve interim
dividends at times between our annual ordinary shareholders’
meetings.
Board
of directors
Pursuant
to our bylaws, our board of directors must consist of between three and eleven
individuals. Our board of directors is elected at an ordinary
shareholders’ meeting and the members stay in their office for no longer than
one year. Our directors, who may but are not required to be
shareholders, may be re-elected. Directors do not stand for
reelection at staggered intervals. Cumulative voting rights are not
permitted or required. There are no provisions in our articles of
association or bylaws regarding retirement or non-retirement of our directors
under an age limit requirement.
Our board
of directors has complete power of our ordinary and extraordinary administration
and in particular may perform all acts it deems advisable for the achievement of
our corporate purposes, except for the actions reserved by applicable law or the
bylaws to a vote of the shareholders at an ordinary or extraordinary
shareholders’ meeting. See also, “Item 10, Additional Information, Memorandum
and Articles of Association, Meetings of Shareholders.”
If we
cannot repay our creditors, and a court determines that our directors did not
perform their duties regarding the preservation of our assets, the court may
find our directors liable to our creditors.
Our board
of directors must appoint a chairman (presidente) and may appoint a
vice-chairman and a secretary. The chairman of the board of directors is our
legal representative. Our board of directors may delegate certain powers to one
or more managing directors (amministratori delegati) or
to an executive committee (comitato esecutivo),
determine the nature and scope of the delegated powers of each director and of
the executive committee and revoke such delegation at any time. Italian law
provides that the board or, if it delegates such duties, the managing directors
or executive committee, must ensure that our organizational and accounting
structure is appropriate to our business. If the board delegates these duties to
managing directors or an executive committee, then the managing directors or the
executive committee, as the case may be, must report to our board of directors
at least every six months on our business and the main transactions carried out
by us or by our subsidiaries, if any. The board, the managing directors or the
executive committee, as the case may be, must report to our board of statutory
auditors at least every six months on our business and the main transactions
carried out by us or our subsidiaries, if any.
Our board
of directors may also appoint one or more senior managers (direttori generali) who
report directly to the board. These senior managers may be employees, and the
board may delegate any powers to them that the board has not already delegated
to managing directors or an executive committee, and subject to the limitations
discussed below.
Under
Italian law, our board of directors may not delegate certain responsibilities,
including the preparation and approval of draft financial statements, the
approval of merger and de-merger plans to be presented to shareholders’
meetings, increases in the amount of our share capital or the issuance of
convertible debentures (if any such power has been delegated to our board of
directors by our shareholders at an extraordinary shareholders’ meeting) and the
fulfillment of the formalities required when our capital is required to be
reduced as a result of accumulated losses that affect our stated capital by more
than one third. See also, “Item 10, Additional Information, Memorandum and
Articles of Association, Meetings of Shareholders.”
Meetings
of our board of directors are called at least two days in advance, in case of
necessity. Statutory auditors are normally required to attend our
board meetings, but if a meeting has been duly called, the board can validly
take action at the meeting even if the board of statutory auditors do not
attend. If the meeting has not been duly called, the meeting is nevertheless
validly constituted if all of the directors in office and all of the statutory
auditors are present. The chairman may call meetings on his own initiative and
meetings must be called upon the request of two directors.
Meetings
of our board of directors may be held in person, or by audio-conference or
tele-conference, in any member state of the European Union or in the United
States. The quorum for meetings of our board of directors is a majority of the
directors in office. Resolutions are adopted by the vote of a majority of the
directors present at a meeting at which a quorum is present.
Under
Italian law, directors having any interest in a proposed transaction must
disclose their interest to the board and to the statutory auditors, even if such
interest is not in conflict with our interest in the same transaction. The
interested director is not required to abstain from voting on the resolution
approving the transaction, but the resolution must state explicitly the reasons
for, and the benefit to us of, the approved transaction. If these provisions are
not complied with, or if the transaction would not have been approved without
the vote of the interested director, the resolution may be challenged by a
director or by our board of statutory auditors if the approved transaction may
be prejudicial to us. A managing director, a member of the executive committee
or any senior manager having any interest in a proposed transaction that he or
she has authority to approve must solicit prior board approval of such
transaction. The interested director or senior manager may be held liable for
damages to us resulting from a resolution adopted in breach of the above rules.
Finally, directors may be held liable for damages to us if they illicitly profit
from insider information or corporate opportunities.
Under
Italian law, directors may be removed from office at any time by the vote of
shareholders at an ordinary shareholders’ meeting although, if removed in
circumstances where there was no just cause, such directors may have a claim for
damages against us. These damages may include, but are not limited to,
compensation that would otherwise have been paid to the director for the
remainder of their term and damage to their reputation. Directors may resign at
any time by written notice to our board of directors and to the chairman of our
board of statutory auditors. Our board of directors must appoint substitute
directors to fill vacancies arising from removals or resignations, subject to
the approval of the board of statutory auditors, to serve until the next
ordinary shareholders’ meeting. If at any time more than half of the members of
our board of directors resign or otherwise cease to be directors, the board of
directors in its entirety ceases to be in office and our board of statutory
auditors must promptly call an ordinary shareholders’ meeting to appoint new
directors.
Our
Compensation Committee recommends the compensation of our directors to our
shareholders and our board of directors. Under Italian law, our
shareholders determine the compensation of our directors relating to basic board
service, such as annual fees for serving on the board and fees for attending
board meetings. Our board of directors, after consultation with our
board of statutory auditors, may determine the remuneration of directors that
serve on the various board committees and/or perform management or other special
services for us, such as managing directors. Our directors are entitled to
reimbursement for expenses reasonably incurred in connection with their service
as directors, such as expenses incurred in travel to attend board
meetings. Our articles of association and bylaws do not contain any
provisions with respect to borrowing powers exercisable by our
directors.
Effective
January 1, 2004, an Italian share corporation may adopt one of three
different models of corporate governance structure. The three models
are:
·
a board
of directors and a board of statutory auditors, which is the historical model
that all companies had prior to January 1, 2004;
·
a
one-tier model with a single board of directors, including an audit committee
composed of independent non-executive directors; or
·
a
two-tier model, including a management board, which is entrusted with management
responsibilities, and a supervisory board which is entrusted mainly with control
and supervisory responsibilities and, among other functions, appoints and
removes the members of the management board and approves our annual financial
statements.
Replacing
the historical model with the new one-tier model or two-tier model requires an
extraordinary shareholders meeting resolution. The amended bylaws approved by
our shareholders on September 30, 2004 do not provide for a change in our
governance structure. As a result, we continue to have a board of directors and
a board of statutory auditors.
Statutory
auditors
Under
Italian law, at least one effective statutory auditor and one alternate
statutory auditor of a company shall be chosen among those registered with the
Register of Auditors established with the Ministry of Justice. The other
statutory auditors shall be chosen among those registered with any register
established by decree of the Ministry of Justice or among University professors
in economic and law matters, if they are not registered with the Register of
Auditors. The following persons may not be appointed as statutory
auditors:
·
one who
is legally incapacitated, bankrupted, or disqualified from holding public or
executive offices under Italian law;
·
a
husband/wife, parent and relative-in-law of someone that is a director of the
company, a director of a company that controls the company, or a director of a
company that is under common control as the company; and
·
one who’s
independence may be jeopardized due to an employment or consultant relationship
or any other economic relationship with the company, a company that controls the
company, or a company that is under common control as the company.
In
addition to electing our board of directors, our shareholders elect a board of
statutory auditors (Collegio
Sindacale) from individuals qualified to act in such capacity under
Italian law. At our ordinary shareholders’ meetings, the statutory auditors are
elected for a term of three fiscal years, may be re-elected for successive terms
and may be removed only for cause and with the approval of a competent court.
Each member of our board of statutory auditors must provide certain evidence
that he is qualified to act in such capacity under Italian law and meets certain
professional standards.
Our
bylaws currently provide that the board of statutory auditors shall consist of
three statutory auditors and two alternate statutory auditors (who are
automatically substituted for a statutory auditor who resigns or is otherwise
unable to serve).
Our board
of statutory auditors is required, among other things, to verify that
we:
·
comply
with applicable laws and our bylaws;
·
respect
principles of good governance; and
·
maintain
adequate organizational structure, internal controls and administrative and
accounting system.
Our board
of statutory auditors is required to meet at least once each ninety days. In
addition, our statutory auditors are supposed to attend meetings of our board of
directors and shareholders’ meetings. If they do not attend two consecutive
meetings of the board of directors or shareholders, they may be terminated for
cause by the shareholders. Our statutory auditors may decide to call a meeting
of our shareholders, ask for information about our management from our
directors, carry out inspections and verifications at our offices and exchange
information with our external auditors. Any shareholder may submit a complaint
to our board of statutory auditors regarding facts that the shareholder believes
should be subject to scrutiny by our board of statutory auditors, which must
take any complaint into account in its report to the shareholders’ meeting. If
shareholders collectively representing 5% of our share capital submit such a
complaint, our board of statutory auditors must promptly undertake an
investigation and present its findings and any recommendations to a
shareholders’ meeting (which must be convened immediately if the complaint
appears to have a reasonable basis and there is an urgent need to take action).
Our board of statutory auditors may report to a competent court serious breaches
of directors’ duties. The court may take such actions as it feels appropriate,
including inspecting our company’s operations, removing directors, appointing
temporary administrators to manage our company and any other actions that the
court feels is necessary to preserve the value of our company for our creditors
and shareholders.
As
mentioned in the preceding section, effective January 1, 2004, Italian
share corporations may depart from the traditional Italian model of corporate
governance structure and opt for two alternative models, neither of which
includes a board of statutory auditors. Our amended bylaws do not provide for a
change in our governance structure, although we do have an audit committee
simply as an internal body of our board of directors.
External
auditor
The 2003
corporate law reform requires us to appoint an external auditor or a firm of
external auditors, each of them qualified to act in such capacity under Italian
law, that shall verify during the fiscal year that our accounting records are
correctly kept and accurately reflect our activities, and that our financial
statements correspond to the accounting records and the verifications conducted
by the external auditors and comply with applicable rules. The external auditor
or the firm of external auditors express their opinion on the financial
statements in a report that may be reviewed by the shareholders at our offices
prior to the annual shareholders’ meeting. The report remains on file at our
offices and may be reviewed after the annual shareholders’ meeting as well; it
is also published for review by the general public.
The
external auditor or the firm of external auditors are appointed for a three-year
term by the vote of our shareholders at an ordinary shareholders’ meeting. At
the ordinary shareholders’ meeting, the shareholders may ask questions of the
board of statutory auditors about their view of the auditors prior to voting on
whether to appoint the auditors. Once appointed, the shareholders may remove the
auditors only for cause and with the approval of the board of statutory auditors
and of a competent court.
On May 2,
2008, our shareholders appointed Reconta Ernst & Young S.p.A., with
offices in Italy, as our external U.S. GAAP auditors for fiscal year
2008. On April 27, 2007, our shareholders appointed Reconta
Ernst & Young S.p.A as our external Italian GAAP auditors for fiscal
years 2007 through 2009.
Meetings
of shareholders
Shareholders
are entitled to attend and vote at ordinary and extraordinary shareholders’
meetings. Votes may be cast personally or by proxy. Shareholders’ meetings may
be called by our board of directors (or our board of statutory auditors) and
must be called if requested by holders of at least 10% of the issued shares.
Shareholders are not entitled to request that a meeting of shareholders be
convened to vote on issues which as a matter of law shall be resolved upon the
basis of a proposal, plan or report by our board of directors. If the
shareholders’ meeting is not called despite the request by shareholders and such
refusal is unjustified, a competent court may call the meeting.
We may
hold meetings of shareholders at our registered office in Villa Guardia, or
elsewhere within Italy, any other member of the European Union or in the United
States following publication of notice of the meeting in the “Gazzetta Ufficiale della Republica
Italiana” or in the newspaper “Il Sole 24 Ore” at least
15 days before the date fixed for the meeting. Our bylaws provide that we
must mail written notice of meetings to our shareholders at least 10 days before
the date fixed for the meeting. The depositary will mail to all record holders
of ADSs a notice containing a summary of all information included in any notice
of a shareholders’ meeting received by the depositary. The notice of a
shareholders’ meeting must specify two meeting dates for an ordinary or
extraordinary shareholders’ meeting (first and second “calls”). The notice of
the shareholders’ meeting also specifies the dates for further calls. The notice
must contain a list of the items to be dealt with and state the day, hour and
place for the meeting for both the first and second calls. However, if the above
procedures are not complied with, the shareholders’ meeting will still be deemed
to be validly held if all outstanding shares are represented, all other holders
having the right to vote are present and the meeting is attended by a majority
of the board of directors and the board of statutory auditors.
We must
convene an ordinary shareholders’ meeting at least once a year within
120 days after the end of the fiscal year. Our annual financial statements
must be approved by vote of our shareholders at this annual ordinary
shareholders’ meeting. We may delay holding the shareholders’ meeting to up to
180 days after the end of the fiscal year if we must prepare consolidated
financial statements or if particular circumstances concerning our structure or
our purposes so require. At ordinary shareholders’ meetings, our shareholders
also appoint the external auditors, approve any distribution of dividends that
have been proposed by our board of directors, elect our board of directors and
statutory auditors, determine their remuneration and vote on any business matter
the resolution or authorization of which is entrusted to the shareholders by
law.
We may
call extraordinary shareholders’ meetings to vote upon split-ups, dissolutions,
appointment of receivers and similar extraordinary actions. We may also call
extraordinary shareholders’ meetings to vote upon proposed amendments to our
bylaws, issuance of convertible debentures, mergers and de-mergers and capital
increases and reductions, if the actions may not be authorized by the board of
directors. The board of directors has the authority to transfer our registered
office within Italy, authorize, on a non-exclusive basis, amendments to our
bylaws that are required by law, authorize mergers by absorption into us of our
subsidiaries in which we hold all or at least 90% of the issued share capital,
authorize reductions of our share capital in case of withdrawal of a shareholder
and indicate who among the directors is our legal representative. If the
shareholders authorize the issuance of shares or other securities at an
extraordinary meeting, they may delegate the power to make specific issuances to
the board of directors.
Once our
shareholders have authorized the issuance of securities, those securities must
be fully paid for before the shareholders may authorize the issuance of
additional securities, unless the shareholders meet and vote to cancel those
authorized but not purchased securities.
The
quorum for an ordinary meeting of our shareholders on the first call is 50% of
the outstanding ordinary shares, while on second call there is no quorum
requirement. In either case, resolutions are carried by the majority of ordinary
shares present or represented at the meeting. The quorum for an extraordinary
meeting of shareholders is a majority of the outstanding ordinary shares on the
first call and more than one-third of the outstanding shares on second call.
Resolutions are carried by a majority of the outstanding ordinary shares on
first call and at least two-thirds of the holders of shares present or
represented at the meeting on second call. In addition, certain matters (such
as, for example, a change in our purpose, the transfer of our registered office
outside Italy or our liquidation prior to the date set forth in our bylaws) must
be carried by the holders of more than one-third of the outstanding ordinary
shares (not just the ordinary shares present or represented at the
meeting).
Shareholders
are entitled to one vote per ordinary share. Neither Italian law nor our bylaws
limit the right of non-resident or foreign owners to hold or vote their shares.
Shareholders do not need to “lodge” their share certificates (if any) or any
communication from their broker in order to take part in the meeting. As a
registered shareholder, the depositary (or its nominee) will be entitled to vote
the ordinary shares underlying the ADSs. The deposit agreement requires the
depositary (or its nominee) to accept voting instructions from owners of ADSs
and to execute such instructions to the extent permitted by law.
Shareholders
may appoint proxies by delivering in writing an appropriate instrument of
appointment to us. Our directors, auditors and employees may not be proxies.
Italian law provides that any one proxy cannot represent more than 20
shareholders prior to the company “making recourse to the risk capital market.”
Italian scholars are undecided as to whether listing shares on an exchange
outside of Italy constitutes “making recourse to the risk capital market.” If we
are deemed to make recourse to the risk capital market by means of listing ADSs
representing our ordinary shares on the Nasdaq Global Market System, any one
proxy cannot represent more than 50 shareholders if the aggregate par value of
our ordinary shares is €5 million or less or more than 100 shareholders if
the aggregate par value of our ordinary shares is more than €5 million but
less than or equal to €25 million. If the aggregate par value of our
ordinary shares is more than €25 million, any one proxy cannot represent
more than 200 shareholders. At December 31, 2008, we had 14,956,317
shares outstanding, the aggregate par value of which is €14,956,317, and so if
we are deemed to make recourse to the risk capital market, each proxy may not
represent more than 100 shareholders.
Preemptive
rights
Pursuant
to Italian law, holders of outstanding ordinary shares and convertible
debentures are entitled to subscribe for issuance of ordinary shares or
convertible debentures in proportion to their holdings at the time that the
shareholders authorize the capital increase for those issuances, unless those
issuances are for non-cash considerations. The preemptive rights may be excluded
or limited by shareholders’ resolution adopted by the affirmative vote of
holders of more than 50 percent of the ordinary shares at an extraordinary
meeting of shareholders, or by a board of directors if the bylaws delegate such
power to the board of directors, and such exclusion or limitation is in the
interest of the company. There can be no assurance that the holders of ADSs may
be able to exercise fully any preemptive rights to which our holders of ordinary
shares may be entitled. If ADS holders are not able to exercise their preemptive
rights, the depositary will, to the extent possible, dispose of such rights for
their account.
FinSirton
waived its preemptive right in connection with the authorization of our private
placement of the Series A notes and warrants, the issuance of options under
our Amended and Restated 2004 Equity Incentive Plan and Amended and Restated
Nonstatutory Share Option Plan and Agreement and the issuance of 4,554,000
additional ordinary shares, which includes the shares underlying the ADSs
offered in our initial public offering and the shares issued in our October 2005
private placement. Our shareholders waived their preemptive rights in connection
with the authorization of 713,518 ordinary shares to be reserved for issuance
upon exercise of the warrants we issued to the participants in our October 2005
private placement and the placement agent for that private
placement.
Our board
of directors excluded the shareholders’ pre-emptive rights in connection with
the authorization of 1,943,525 ordinary shares and 466,446 ordinary shares to be
reserved for issuance of the warrants we issued to the participants in our June
2006 private placement. Our board of directors also excluded the
shareholders’ pre-emptive rights in connection with the authorization of
2,354,000 ordinary shares we issued to the participants in our February 2007
private placement. Our shareholders waived their pre-emptive rights
in connection with the authorization of 1,000,000 ordinary shares to be reserved
for issuance upon exercise of options available for grant under our 2007 Stock
Option Plan.
Preference
shares; other securities
Italian
law permits us to issue preference shares with limited voting rights, other
classes of equity securities with different economic and voting rights,
“participation certificates” with limited economic and voting rights, as well as
“tracking shares,” if our bylaws permit such issuances. Our bylaws currently do
allow us to issue these securities. We may also issue convertible and
non-convertible debt securities. In order to issue convertible debt securities,
our board of directors would need to recommend to our shareholders that they
approve the issuance of particular securities in connection with a capital
increase, and the shareholders would need to vote to approve such an issuance
and capital increase at an extraordinary meeting. The board would also need to
recommend, and the shareholders would need to approve by vote at the
extraordinary meeting, specific terms of the securities. The shareholders may
vote at the extraordinary meeting to delegate to the board of directors the
power to issue those securities from time to time, but not more than five years
from the date of the extraordinary meeting.
Debt-equity
ratio
Italian
law provides that we may issue debt securities for an amount not exceeding twice
the amount of the sum of the aggregate par value of our ordinary shares (which
we call our capital), our legal reserve and any other disposable reserves
appearing on our latest Italian balance sheet approved by our shareholders. The
legal reserve is a reserve to which we allocate 5% of our Italian GAAP net
income each year until it equals at least 20% of our Italian GAAP capital. One
of the other reserves that we maintain on our balance sheet is a “share premium
reserve”, meaning amounts paid for our ordinary shares in excess of the capital.
Until our outstanding debt securities are repaid in full, we may not voluntarily
reduce our capital or distribute our reserves (such as by declaring dividends)
in the event the aggregate of the capital and reserves, following such reduction
of capital and/or distribution of reserves, is less than half of the outstanding
amount of the debt securities. If our equity is reduced by losses or otherwise
such that the amount of the outstanding debt securities is more than twice the
amount of our equity, we cannot distribute profits to our shareholders until the
ratio between the amount of our debt securities and our capital and reserves is
restored. Moreover, some legal scholars are of the opinion that in
such a case the ratio must be restored by a recapitalization of our company. If
our equity is reduced, we could recapitalize by means of issuing new shares or
having our current shareholders contribute additional capital to our company,
although there can be no assurance that we would be able to find purchasers for
new shares or that any of our current shareholders would be willing to
contribute additional capital. These laws regarding the ratio of debt securities
to capital and reserves do not apply to issuances of debt securities to
professional investors (as defined by Italian law). However, in such
a case, should the professional investors transfer such debt securities to third
parties not qualified as professional investors, the former remain liable to us
for the payment of such securities.
Reduction
of equity by losses
Italian
law requires us to reduce our shareholders’ equity in certain situations. Our
shareholders’ equity has three main components: capital, legal reserves and
other shareholders’ equity (such as any premium paid for the shares over the par
value and any retained earnings). We apply our losses from operations against
our shareholders’ equity other than legal reserves and capital first. If
additional losses remain, or if we have no shareholders’ equity other than legal
reserves and capital, and the additional losses are more than one-third of the
amount of our legal reserves and capital, our board of directors must call a
shareholders’ meeting as soon as possible. The shareholders must vote to elect
to either reduce the legal reserves and capital by the amount of the remaining
losses, or to carry the losses forward for up to one year. If the shareholders
vote to elect to carry the losses forward up to one year, and at the end of the
year, the losses are still more than one-third of the amount of the legal
reserves and capital, then we must reduce our legal reserves and capital by the
amount of the losses. However, as an S.p.A., we must maintain capital
of at least €120 thousand. If the amount of the losses would reduce our
capital to less than €120 thousand, then:
·
we would
need to increase our capital, which we could do by issuing new shares or having
our shareholders contribute additional capital to our company, although there
can be no assurance that we would be able to find purchasers for new shares or
that any of our current shareholders would be willing to contribute additional
capital; or
·
our shareholders would need to convert our company to an “S.r.l”, which has a
lower capital requirement of €10 thousand; or
·
if
neither of these options were taken, our shareholders or, if they do not so
resolve, a court of competent jurisdiction, could appoint a receivor to
liquidate our company.
Segregation
of assets and proceeds
Pursuant
to the 2003 corporate law reform, effective January 1, 2004, our board of
directors may resolve to segregate our assets into one or more separate pools.
Such pools of assets may have an aggregate value not exceeding 10% of our
shareholders’ equity. Each pool of assets must be used exclusively for the
carrying out of a specific business and may not be attached by our general
creditors Similarly, creditors with respect to such specific business may only
attach those assets that are included in the corresponding pool. Tort creditors,
on the other hand, may always attach any of our assets. Our board of directors
may authorize us to issue securities carrying economic and administrative rights
relating to a pool. In addition, financing agreements relating to the funding of
a specific business may provide that the proceeds of such business be used
exclusively to repay the financing. Such proceeds may be attached only by the
financing party and such financing party would have no recourse against other
assets of ours.
We have
no present intention to enter into any such transaction and none is currently in
effect.
Liquidation
rights
Pursuant
to Italian law and subject to the satisfaction of the claims of all creditors,
our shareholders are entitled to a distribution in liquidation that is equal to
the par value of their shares (to the extent available out of our net
assets). Preferred shareholders and holders of “participating
certificates” typically do not participate in the distribution of assets of a
dissolved corporation beyond their established contractual
preferences. Once the rights of preferred shareholders and holders of
participating certificates and the claims of all creditors have been fully
satisfied, holders of ordinary shares are entitled to the distribution of any
remaining assets.
Purchase
of shares by us
We are
permitted to purchase our outstanding shares, subject to certain conditions and
limitations provided for by Italian law. We may only purchase the shares out of
profits available for dividends or out of distributable reserves, in each case
as appearing on the latest shareholder-approved financial statements. Further,
we may only repurchase fully paid-in shares. Such purchases must be authorized
by our shareholders by vote at an ordinary shareholders’ meeting. The number of
shares to be acquired, together with any shares previously acquired by us or any
of our subsidiaries may not (except in limited circumstances) exceed in
aggregate 10% of the total number of shares then issued and the aggregate
purchase price of such shares may not exceed the earnings reserve specifically
approved by shareholders. Shares held in excess of such 10% limit must be sold
within one year of the date of purchase. Similar limitations will apply with
respect to purchases of our ordinary shares by any subsidiaries we may create in
the future.
A
corresponding reserve equal to the purchase price of such shares must be created
in the balance sheet, and such reserve is not available for distribution, unless
such shares are sold or cancelled. Shares purchased and held by us may be resold
only pursuant to a resolution of our shareholders adopted at an ordinary
shareholders’ meeting. The voting rights attaching to the shares held by us or
our subsidiaries cannot be exercised, but the shares can be counted for quorum
purposes in shareholders’ meetings. Dividends and other rights, including
pre-emptive rights, attaching to such shares will accrue to the benefit of other
shareholders.
Notification
of the acquisition of shares
In
accordance with Italian antitrust laws, the Italian Antitrust Authority is
required to prohibit the acquisition of control in a company which would thereby
create or strengthen a dominant position in the domestic market or a significant
part thereof and which would result in the elimination or substantial reduction,
on a lasting basis, of competition, provided that certain turnover thresholds
are exceeded. However, if the turnover of the acquiring party and the company to
be acquired exceed certain other monetary thresholds, the antitrust review of
the acquisition falls within the exclusive jurisdiction of the European
Commission.
Minority
shareholders’ rights; withdrawal rights
Shareholders’
resolutions which are not adopted in conformity with applicable law or our
bylaws may be challenged (with certain limitations and exceptions) within ninety
days by absent, dissenting or abstaining shareholders representing individually
or in the aggregate at least 5% of our share capital (as well as by our board of
directors or our board of statutory auditors). Shareholders not reaching this
threshold or shareholders not entitled to vote at our meetings may only claim
damages deriving from the resolution.
Dissenting
or absent shareholders may withdraw from the company as a result of
shareholders’ resolutions approving, among others things, material modifications
of our purpose or of the voting rights of our ordinary shares, our
transformation from a share corporation into a different legal entity or the
transfer of our registered seat outside Italy. In such a case, our other
shareholders would have a pre-emptive right to purchase the shares of the
withdrawing shareholder. Should no shareholder exercise that
pre-emptive right, the shares must be offered to third parties or, in the
absence of any third party wishing to buy them, they will be purchased by us by
using the available reserves. In the event no reserve is available,
our capital must be reduced accordingly. According to the 2003
corporate law reform, any repurchase of such shares by us must be on terms
authorized by our board of directors, upon consultation with our board of
statutory auditors and our external auditor, having regard to our net assets
value, our prospective earnings and the market value of our ordinary shares, if
any. Under the 2003 corporate law reform, we may set forth different criteria in
our bylaws for the consideration to be paid to withdrawing shareholders. We have
not done so as of the date of this annual report.
Each
shareholder may bring to the attention of the board of statutory auditors facts
or acts which such shareholder deems wrongful. If such shareholders represent
more than 5% of our share capital, our board of statutory auditors must
investigate without delay and report its findings and recommendations to our
shareholders’ meeting. Shareholders representing more than 10% of our share
capital have the right to report to the competent court serious breaches of the
duties of the directors which may be prejudicial to us or to our subsidiaries.
In addition, shareholders representing at least 20% of our share capital may
commence derivative suits before the competent court against our directors,
statutory auditors and general managers. We may waive or settle the suit unless
shareholders holding at least 20% of the shares vote against such waiver or
settlement. We will reimburse the legal costs of such action in the event that
the claim of such shareholders is successful and the court does not award such
costs against the relevant directors, statutory auditors or general
managers.
Liability
for mismanagement of subsidiaries
Pursuant
to the 2003 corporate law reform, if we, acting in our own interest or the
interest of third parties, mismanage a company that we control, we are liable to
that company’s shareholders and creditors for ensuing damages. That liability is
excluded if the ensuing damage is fully eliminated, including through subsequent
transactions, or the damage is effectively offset by the global benefits
deriving in general to the company from the continuing exercise of such
direction and coordination powers. We are presumed to have control over, among
other companies, any subsidiary whose financial statements are consolidated into
ours. Since we currently have no subsidiaries, this law does not apply to us at
this time.
LIMITATION
OF LIABILITY AND INDEMNIFICATION MATTERS
Insofar
as indemnification for liabilities arising under Securities Act of 1933, as
amended, or the Securities Act, may be permitted to directors, officers or
persons controlling our company under the foregoing provisions, we have been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore
unenforceable.
THE
NASDAQ GLOBAL MARKET
Our ADSs
are listed on The Nasdaq Global Market under the trading symbol
“GENT.”
COMPARISON
OF ITALIAN AND DELAWARE CORPORATE LAWS
WE ARE
GOVERNED BY THE CORPORATE LAWS IN ITALY, WHICH ARE IN SOME CASES LESS FAVORABLE
TO SHAREHOLDERS THEN THE CORPORATE LAWS IN DELAWARE, UNITED STATES.
The
following is a summary of material differences between the Delaware General
Corporate Law and the laws of Italy.
Mergers
and other extraordinary corporate transactions
Under
Delaware law, a merger or consolidation requires the approval of a majority of
the votes cast by the holders of shares entitled to vote in person or by proxy
and if any class or series is entitled to vote thereon as a class, the
affirmative vote of a majority of the shares within each class or series
entitled to vote as a class in person or by proxy, unless the certificate of
incorporation requires a greater vote. The sale, lease, exchange or other
disposition of all, or substantially all, the property and assets, of a Delaware
corporation requires a majority vote unless the certificate of incorporation
requires a greater vote. Under Delaware law, the dissolution of a corporation
requires a majority vote unless the certificate of incorporation requires a
greater vote.
Under
Italian law, a merger or consolidation requires the approval of a majority of
the votes cast by the shareholders entitled to vote in person or by proxy at an
extraordinary shareholders’ meeting. Our bylaws designate power to approve
mergers of wholly-owned subsidiaries and subsidiaries of which we own at least
90% to our board of directors, although our shareholders may overrule our board
of directors.
Amendments
to charter documents
Under
Delaware law, charter documents are composed of two documents: a certificate of
incorporation and bylaws. An amendment to the certificate of incorporation
ordinarily requires a majority vote (unless the certificate of incorporation
requires a greater vote). If a class or series is entitled separately to vote on
an amendment, its majority vote (unless the certificate of incorporation
requires a greater vote), separately calculated, is necessary to approve the
amendment. In addition, under Delaware law, the holders of outstanding shares of
a class or series are entitled to vote as a class upon a proposed amendment by a
majority vote (unless the certificate of incorporation requires a greater vote),
whether or not entitled to vote thereon by the provisions of a company’s
certificate of incorporation, if the amendment would have certain effects
identified in Delaware law.
Under
Delaware law, directors of a corporation may adopt, amend or repeal the
corporation’s bylaws, unless the certificate of incorporation reserves the power
exclusively to the shareholders, or the shareholders, in amending, repealing or
adopting a particular bylaw, expressly provide that the board of directors may
not amend or repeal that bylaw. Unless the certificate of incorporation or a
bylaw adopted by the shareholders provides otherwise, a corporation’s
shareholders may amend, repeal or adopt the corporation’s bylaws even though the
bylaws may also be amended, repealed or adopted by its directors.
Under
Italian law, the charter documents are composed of articles of association and
bylaws. An amendment to these documents requires the approval of a majority of
the votes cast by the shareholders entitled to vote in person or by proxy at an
extraordinary shareholders’ meeting, except that certain extraordinary actions,
such as change in our purpose, liquidation or issuance of preferred shares and
others, only require the approval of more than one-third of our outstanding
shares for both first and second call.
Naming
of companies
Under
Delaware law a company shall use one of these same endings or others, including
“association”, “company”, “corporation”, “club”, “foundation”, “fund”,
“incorporated,” “institute”, “society”, “union”, “syndicate” or “limited” (or
abbreviations thereof, with or without punctuation), or words (or abbreviations
thereof, with or without punctuation) of like import of foreign countries or
jurisdictions (provided they are written in roman characters or
letters).
Under
Italian law, the name of a corporation must end in “S.p.A.” or “Societá per
Azioni.”
Capital
Delaware
law permits companies to be incorporated with par value shares or no par value
shares. If a Delaware company issues par value shares and receives an
amount in excess of the par value, the directors may attribute a portion of the
excess as “capital.” If a Delaware company issues no par value shares, the
directors may attribute a portion of the amount paid as “capital.”
Italian
law permits companies to be incorporated with par value shares, no par value
shares or a combination of such. If an Italian company issues par value shares
and receives an amount in excess of the par value, the par value is attributed
as “capital” and the excess is attributed to a “premium reserve,” which is part
of shareholders’ equity. If an Italian company issues no par value shares, the
entire amount is attributed as “capital.”
Franchise
tax
Delaware
levies a franchise tax based on authorized capital. Italian law has no such
tax.
Liability
of shareholders
The
liability of shareholders of a Delaware company is limited to the amount paid
for their shares. The liability of shareholders of a Italian company is also
limited to the amount paid for their shares.
Quorum
of shareholders
Under
Delaware law, with respect to any matter, a quorum shall be present at a meeting
of shareholders if the holders of a majority of the shares entitled to vote are
represented at the meeting in person or by proxy, unless otherwise provided in
the certificate of incorporation. Where a separate vote by a class or series or
classes or series is required, a quorum shall be present at a meeting of
shareholders if the holders of a majority of the shares entitled to vote are
represented at the meeting in person or by proxy, unless otherwise provided in
the certificate of incorporation.
Under
Italian law, a quorum shall be present at an ordinary meeting of shareholders on
first call if the holders of 50% of the outstanding ordinary shares are
represented at the meeting in person or by proxy, but there is no quorum
requirement on second call. A quorum shall be present at an extraordinary
meeting of shareholders on first call if the holders of a majority of the
outstanding ordinary shares are represented at the meeting in person or by proxy
and if the holders of more than one-third of the outstanding shares are
represented at the meeting in person or proxy on second call.
Actions
without a meeting-shareholders
Under
Delaware law, shareholders may take action without a meeting if a consent in
writing is signed by the shareholders having the minimum number of votes that
would be necessary to take such action at a meeting, unless the certificate of
incorporation provides otherwise.
Under
Italian law, shareholders may not act without a meeting.
Special/extraordinary
meetings
Under
Delaware law, special meetings of shareholders may be called by the board of
directors or by such person or persons as may be authorized by the certificate
of incorporation or the bylaws.
Under
Italian law, an extraordinary shareholders’ meeting may be called by our board
of directors and must be called if requested by holders of at least 10% of the
issued shares. Shareholders are not entitled to request that a meeting of
shareholders be convened to vote on issues which as a matter of law shall be
resolved upon the basis of a proposal, plan or report by our board of directors.
If the shareholders’ meeting is not called despite the request by shareholders
and such refusal is unjustified, a competent court may call the
meeting.
Director
qualifications
Under
Delaware law, directors need not be residents of Delaware or shareholders of the
corporation unless the certificate of incorporation or bylaws so require. The
certificate of incorporation or bylaws may prescribe other qualifications for
directors.
Under
Italian law, the only requirement for directors is that they have not been
deemed “legally incompetent” to be a director under Italian law. “Legal
incompetence” is determined by a competent court and can be determined for
reasons such as lack of mental capacity, physical incapability, emotional
instability, bankruptcy, certain criminal convictions or drug or alcohol
addiction.
Election
of directors
Under
Delaware law, unless otherwise provided in the certificate of incorporation,
shareholders are not entitled to cumulative voting in the election of directors.
Absent such provision, the directors of a corporation are elected by a plurality
of the votes cast by the holders of shares entitled to vote in person or by
proxy at a meeting of shareholders at which a quorum is present.
Under
Italian law, shareholders are not entitled to cumulative voting in the election
of directors. The directors of a corporation are elected by a majority of the
votes cast by the holders of shares entitled to vote in person or by proxy at an
ordinary meeting of shareholders at which a quorum is present.
Actions
without a meeting - directors
Under
Delaware law, any action required or permitted to be taken at any meeting of the
board of directors may be taken without a meeting if all members of the board
consent to it in writing or by electronic transmission, and the writing or
electronic transmission is filed with the minutes of proceedings of the board
unless otherwise restricted by the certificate of incorporation or
bylaws.
Under
Italian law, directors may not act without a meeting.
Removal
of directors
Under
Delaware law, one or more or all the directors of a corporation may be removed
for cause or, unless provided in the certificate of incorporation, removed
without cause by the shareholders by the affirmative vote of the majority of
votes cast by the holders of shares entitled to vote thereon, subject to certain
exceptions.
Under
Italian law, directors may be removed from office at any time by the vote of
shareholders at an ordinary shareholders’ meeting although, if removed in
circumstances where there was no just cause, such directors may have a claim for
damages against us. These damages may include, but are not limited to,
compensation that would otherwise have been paid to the director for the
remainder of their term and damage to their reputation. Our board of directors
must appoint substitute directors to fill vacancies arising from removals,
subject to the approval of the board of statutory auditors, to serve until the
next ordinary shareholders’ meeting. If at any time more than half of the
members of our board of directors are removed or otherwise cease to be
directors, the board of directors in its entirety ceases to be in office and our
board of statutory auditors must promptly call an ordinary shareholders’ meeting
to appoint new directors.
Location
of directors meetings
Delaware
law provides that, unless otherwise restricted by the certificate of
incorporation or bylaws, the board may hold its meetings outside of the State of
Delaware. Under Italian law and our bylaws, meetings of our board of directors
may be held in person, or by audio-conference or tele-conference, in any member
state of the European Union or in the United States.
Limitation
of liability and indemnification
Delaware
law requires directors and members of any committee designated by the board of
directors to discharge their duties in good faith and with that degree of
diligence, care and skill which ordinary prudent people would exercise under
similar circumstances and positions. Delaware law permits a corporation to set
limits on the extent of a director’s liability. Italian law requires directors
and members of any committee designated by the board of directors to discharge
their duties in good faith and with that degree of diligence required by the
nature of their office and their specific competence. If we cannot repay our
creditors, and a court determines that our directors did not perform their
duties regarding the preservation of our assets, the court may find our
directors liable to our creditors. Italian law permits a corporation to set
limits on the extent of a director’s liability. We intend to enter into
indemnification agreements with our directors. We have already agreed to
indemnify our directors for any tax penalties inflicted upon, among other
people, our directors who, when acting on our behalf and in our interest, breach
or cause breaches of tax laws unintentionally, except in the case of fraud, and
to consider, on a case by case basis, waiving our right of recourse against
directors who breach tax laws that result in monetary penalties inflicted on
us.
Dividends
Delaware
law provides that the board of directors of a corporation may authorize and the
corporation may make distributions subject to any restrictions in its
certificate of incorporation. However, Delaware law provides that distributions
may not be made if, after giving effect to the distribution, the corporation
would not be able to pay its debts as they become due in the usual course of its
business or total assets would be less than total liabilities.
Under
Italian law, our payment of any annual dividend must be proposed by our board of
directors and is subject to the approval of our shareholders at the annual
ordinary shareholders’ meeting. Before dividends may be paid out of our profit
in any year, we must allocate an amount equal to 5% of the net profit to our
legal reserve until such reserve is at least equal to 20% of the aggregate par
value of our issued shares, which we call our “capital.” If our capital is
reduced as a result of accumulated losses, we may not pay dividends until the
capital is reconstituted or reduced by the amount of such losses. We may
distribute reserves deriving from available retained earnings from prior years,
provided that after such payment, we will have a legal reserve at least equal to
the legally required minimum of 20% of the capital. We may not approve or pay
dividends until this minimum is met. If the minimum is met, the board of
directors proposes the issuance of a dividend and the shareholders’ resolution
approves that issuance, the shareholders’ resolution will specify the manner and
the date for their payment. Any dividends which shareholders do not collect
within five years of the date on which they become payable will be forfeited by
those shareholders and we will keep the money. The board of directors may not
approve interim dividends at times between our annual ordinary shareholders’
meetings.
Return
of capital
Delaware
law provides that corporations may return capital by dividend, redemption or
repurchase subject to certain solvency tests. Shareholder approval is not
required for these transactions so long as the corporation meets the solvency
tests.
Under
Italian law, we are permitted to purchase our outstanding shares, subject to
certain conditions and limitations provided for by Italian law. We may only
purchase the shares out of profits available for dividends or out of
distributable reserves, in each case as appearing on the latest
shareholder-approved financial statements. Further, we may only repurchase fully
paid-in shares. Such purchases must be authorized by our shareholders by vote at
an ordinary shareholders’ meeting. The number of shares to be acquired, together
with any shares previously acquired by us or any of our subsidiaries may not
(except in limited circumstances) exceed in aggregate 10% of the total number of
shares then issued and the aggregate purchase price of such shares may not
exceed the earnings reserve specifically approved by shareholders. Shares held
in excess of such 10% limit must be sold within one year of the date of
purchase. Similar limitations will apply with respect to purchases of our
ordinary shares by any subsidiaries we may create in the future.
A
corresponding reserve equal to the purchase price of such shares must be created
in the balance sheet, and such reserve is not available for distribution, unless
such shares are sold or cancelled. Shares purchased and held by us may be resold
only pursuant to a resolution of our shareholders adopted at an ordinary
shareholders’ meeting. The voting rights attaching to the shares held by us or
our subsidiaries cannot be exercised, but the shares can be counted for quorum
purposes in shareholders’ meetings. Dividends and other rights, including
pre-emptive rights, attaching to such shares will accrue to the benefit of other
shareholders.
Officers
Under
Delaware law, a corporation is required to have such officers as are required to
sign instruments to be filed with the Secretary of State and stock certificates.
It is necessary that the corporation have at least two officers to comply with
this requirement. The corporation has complete freedom to designate its
executives by whatever names it wishes and to allocate the managerial power
delegated to executives as the corporation may wish. Any number of offices may
be held by the same person unless otherwise provided by the certificate of
incorporation or the bylaws. Officers may be chosen in any way and by any person
or body if the bylaws or a resolution of the governing body so
specifies.
Under
Italian law, there are no requirements for any specific numbers or titles of
officers.
Share
certificates
Under
Delaware law, the shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertified stock. However, existing shareholders and future
shareholders are able to obtain a stock certificate signed by or in the name of
the corporation by the chairman or vice-chairman of the board of directors or
the president or vice-president, and by the treasurer or an assistant treasurer,
or the secretary or an assistant secretary of such corporation if they desire.
The terms governing preferred stock must be expressed “in clear language” in the
certificate of incorporation (or by a separate resolution authorized by the
charter).
Under
Italian law, the shares of a corporation may be issued in either registered or
certificated form. Our bylaws provide that our ordinary shares are not
certificated. Rather, they are held through various participants, primarily
institutions, on Monte Titoli’s system and registered by book-entry form on our
shareholders book.
Preemptive
rights
Under
Delaware law, shareholders do not possess preemptive rights as to the issuance
of additional securities by the corporation, unless the certificate of
incorporation provide otherwise.
Under
Italian law, holders of outstanding ordinary shares and convertible debentures
are entitled to subscribe for issuance of ordinary shares or convertible
debentures in proportion to their holdings at the time that the shareholders
authorize the capital increase for those issuances, unless those issuances are
for non-cash considerations. The preemptive rights may be waived or limited by
shareholders’ resolution adopted by the affirmative vote of holders of more than
50 percent of the ordinary shares at an extraordinary meeting of
shareholders and such waiver or limitation is in the interest of our
company.
Liquidation
rights generally
Under
Delaware law, shareholders are entitled to share ratably in the distribution of
assets upon the dissolution of their corporation. Preferred shareholders
typically do not participate in the distribution of assets of a dissolved
corporation beyond their established contractual preferences. Once the rights of
preferred shareholders have been fully satisfied, holders of common stock are
entitled to the distribution of any remaining assets.
Under
Italian law, and subject to the satisfaction of the claims of all creditors, our
shareholders are entitled to a distribution in liquidation that is equal to the
par value of their shares (to the extent available out of our net assets).
Preferred shareholders and holders of “participating certificates” typically do
not participate in the distribution of assets of a dissolved corporation beyond
their established contractual preferences. Once the rights of preferred
shareholders and holders of participating certificates have been fully
satisfied, holders of ordinary shares are entitled to the distribution of any
remaining assets.
Shareholder
derivative suits
Under
Delaware law, a derivative suit may be brought only if the plaintiff was a
record or beneficial owner of shares at the time of the transaction of which he
or she complains, and the initial pleading in the suit states that the ownership
requirement is satisfied, and with particularity, the efforts of the plaintiff
to have the suit brought for the corporation by the board of directors, or the
reasons for not making such efforts. The court may require the plaintiff to give
security for the expenses incurred or expected to be incurred by the defendants.
The court may also require the plaintiff to pay expenses to the defendants if
the court finds, upon final judgment for the defendants, that the suit was
brought without reasonable cause.
Under
Italian law, a shareholder’s name must be entered in the shareholder’s register
in order to establish his rights as a shareholder against us. Each shareholder
may bring to the attention of the board of statutory auditors facts or acts
which such shareholder deems wrongful. If such shareholders represent more than
5% of our share capital, our board of statutory auditors must investigate
without delay and report its findings and recommendations to our shareholders’
meeting. Shareholders representing more than 10% of our share capital have the
right to report to the competent court serious breaches of the duties of the
directors which may be prejudicial to us or to our subsidiaries. In addition,
shareholders representing at least 20% of our share capital may commence
derivative suits before the competent court against our directors, statutory
auditors and general managers. We may waive or settle the suit unless
shareholders holding at least 20% of the shares vote against such waiver or
settlement. We will reimburse the legal costs of such action in the event that
the claim of such shareholders is successful and the court does not award such
costs against the relevant directors, statutory auditors or general
managers.
Dissenters’
rights
Any
shareholder of a Delaware corporation has the right to dissent from any plan of
merger or consolidation to which the corporation is a party, provided that
unless the certificate of incorporation otherwise provides, a shareholder shall
not have the right to dissent from any plan of merger or consolidation with
respect to shares of a class or series which is listed on a national securities
exchange or is held of record by not less than 2,000 holders on the record date
fixed to determine the shareholders entitled to vote upon the plan of merger or
consolidation. A dissenting shareholder has a right of appraisal of its
shares.
Under
Italian law, shareholders’ resolutions which are not adopted in conformity with
applicable law or our bylaws may be challenged (with certain limitations and
exceptions) within ninety days by absent, dissenting or abstaining shareholders
representing individually or in the aggregate at least 5% of our share capital
(as well as by our board of directors or our board of statutory auditors).
Shareholders not reaching this threshold or shareholders not entitled to vote at
our meetings may only claim damages deriving from the resolution.
Dissenting
or absent shareholders may withdraw from the company as a result of
shareholders’ resolutions approving, among others things, material modifications
of our purpose or of the voting rights of our ordinary shares, our
transformation from a share corporation into a different legal entity or the
transfer of our registered office outside Italy. In such a case, our other
shareholders would have a pre-emptive right to purchase the shares of the
withdrawing shareholder. Should no shareholder exercise that
pre-emptive right, the shares must be offered to third parties or, in the
absence of any third party wishing to buy them, they will be purchased by us by
using the available reserves. In the event no reserve is available,
our capital must be reduced accordingly. According to the 2003
corporate law reform, any repurchase of such shares by us must be on terms
authorized by our board of directors, upon consultation with our board of
statutory auditors and our external auditor, having regard to our net assets
value, our prospective earnings and the market value of our ordinary shares, if
any. Under 2003 corporate law reform, we may set forth different criteria in our
bylaws for the consideration to be paid to withdrawing shareholders in such
withdrawal. We have not done so as of the date of this annual
report.
Interested
shareholder transactions
Delaware
corporations are subject to the State of Delaware’s “business combination”
statute. In general, that statute prohibits a publicly-traded corporation from
engaging in various “business combination” transactions with any “interested
stockholder” for a period of three years after the time that the shareholder
became an interested stockholder, unless the business combination is approved by
the board prior to the time the shareholder became an interested stockholder,
the interested stockholder acquired 85% or more of the outstanding shares in a
transaction in which it became an interested stockholder, or the business
combination is approved by the board and by holders of two-thirds of the shares
not held by the interested stockholder. A “business combination” includes
mergers, assets sales and other transactions resulting in financial benefit to a
shareholder. An “interested stockholder” is a person who, together with
affiliates and associates, owns 15% or more of a corporation’s voting
stock.
Under
Italian law, directors having any interest in a proposed transaction must
disclose their interest to the board and to the statutory auditors, even if such
interest is not in conflict with our interest in the same transaction. The
interested director is not required to abstain from voting on the resolution
approving the transaction, but the resolution must state explicitly the reasons
for, and the benefit to us of, the approved transaction. If these provisions are
not complied with, or if the transaction would not have been approved without
the vote of the interested director, the resolution may be challenged by a
director or by our board of statutory auditors if the approved transaction may
be prejudicial to us. A legal representative of our company having any interest
in a proposed transaction that he or she has authority to approve must solicit
prior board approval of such transaction. The interested director may be held
liable for damages to us resulting from a resolution adopted in breach of the
above rules. Finally, directors may be held liable if they illicitly profit from
insider information or corporate opportunities.
Inspection
of books and records
Under
Delaware law, upon the written request of any shareholder, the corporation shall
mail to such shareholder its balance sheet as at the end of the preceding fiscal
year, and its profits and loss and surplus statements for such fiscal year.
Inspection rights are extended to any person who beneficially owns stock through
either a voting trustee or nominee who holds the stock of record on behalf of
such person. Where the shareholder is other than a record holder, such person
must state under oath the person’s status as a shareholder and produce
documentary evidence of beneficial ownership. Any shareholder is entitled to
examine a corporation’s relevant books and records for any proper purpose,
namely, a purpose reasonably related to such person’s interest as a shareholder,
upon written demand stating the purpose thereof.
Under
Italian law, our shareholders may review the report of the board of directors on
the management of our company and the report of our statutory auditors and our
accounting firm on our financial statements during the fifteen days prior to the
ordinary shareholders’ meeting to approve those financial statements. The report
remains on file at our offices and may be reviewed after the annual
shareholders’ meeting as well; it is filed with the Companies’ Registry of Como
for review by the general public. Moreover, any shareholder is entitled to
examine the shareholders’ ledger and the ledger of the minutes of the
shareholders’ meeting, at any time.
Registered
office
Delaware
law requires a “registered office” in Delaware. Italian law requires a
registered office in Italy.
Issuance
of shares
Under
Delaware law, directors have the authority to issue shares of common stock. If
the certificate of incorporation so provides, they may also designate the terms
of preferred stock and issue shares of preferred stock.
Under
Italian law, issuances of any shares, ordinary or otherwise, require an
amendment to our bylaws to increase our capital, which must be recommended to
our shareholders by our board of directors and approved by a vote of our
shareholders at an extraordinary meeting of shareholders. Our shareholders may
not authorize the issuance of shares for a period of more than five years from
the date of the extraordinary shareholders’ meeting. Once our shareholders have
authorized the issuance of securities, those securities must be paid for before
the newly issued shares may be purchased. The board would also need to
recommend, and the shareholders would need to approve by vote at the
extraordinary meeting, specific terms of the securities. Also, our shareholders
can authorize the board of directors to increase our capital, one or more times,
for a certain amount, but the board may exercise such power for only five
years. If the authorized capital is not issued by the end of those
five years, the authorized capital expires, and our board and shareholders would
need to meet again to authorize a new capital increase. Our
shareholders authorized our board of directors to increase our capital by up to
€90 million of par value for ordinary shares and €10 million for ordinary shares
issuable upon conversion of convertible bonds on April 28,
2006. Italian law provides that any interested person may, for a
period of 180 days following the filing of the shareholders’ resolution
concerning the approval of the capital increase with the Register of Companies,
challenge such capital increase if the increase was not in compliance with
Italian law. If a shareholders’ meeting was not called to approve the capital
increase, any interested person may challenge the capital increase for a period
of 90 days following the next shareholders’ meeting. Finally, once
our shareholders authorize a capital increase, we must issue all of those
authorized shares before the shareholders may authorize a new capital increase,
unless the shareholders vote to cancel the previously authorized
shares.
Debt-equity
ratio
Under
Delaware law, a corporation is not restricted as to the amount of debt
securities that it may issue.
Under
Italian law, we may issue debt securities for an amount not exceeding twice the
amount of the sum of the aggregate par value of our ordinary shares (which we
call our capital), our legal reserve and any other disposable reserves appearing
on our latest Italian balance sheet approved by our shareholders. The legal
reserve is a reserve to which we allocate 5% of our net income each year until
it equals at least 20% of our capital. One of the other reserves that we
maintain on our balance sheet is a “share premium reserve”, meaning amounts paid
for our ordinary shares in excess of the capital. Until our outstanding debt
securities are repaid in full, we may not voluntarily reduce our capital or
distribute our reserves (such as by declaring dividends) in the event the
aggregate of the capital and reserves, following such reduction of capital
and/or distribution of reserves, is less than half of the outstanding amount of
the debt securities. If our equity is reduced by losses or otherwise such that
the amount of the outstanding debt securities is more than twice the amount of
our equity, we cannot distribute profits to our shareholders until the ratio
between the amount of our debt securities and our capital and reserves is
restored. Moreover, some legal scholars are of the opinion that in
such a case the ratio must be restored by a recapitalization of our company. If
our equity is reduced, we could recapitalize by means of issuing new shares or
having our current shareholders contribute additional capital to our company,
although there can be no assurance that we would be able to find purchasers for
new shares or that any of our current shareholders would be willing to
contribute additional capital. These laws regarding the ratio of debt securities
to capital and reserves do not apply to issuances of debt securities to
professional investors (as defined by Italian law). However, in such
a case, should the professional investors transfer such debt securities to third
parties not qualified as professional investors, the former remain liable to us
for the payment of such securities.
Reduction
of equity by losses
Under
Delaware law, a corporation’s shareholders’ equity is reduced by losses, and may
become negative.
Italian
law requires us to reduce our shareholders’ equity in certain situations. Our
shareholders’ equity has three main components: capital, legal reserves and
other shareholders’ equity (such as any premium paid for the shares over the par
value and any retained earnings). We apply our losses from operations against
our legal reserves and capital. If our capital is reduced for more than
one-third as a result of losses, our board of directors must call a
shareholders’ meeting as soon as possible. The shareholders must vote to elect
to either reduce the legal reserves and capital by the amount of the remaining
losses, or to carry the losses forward for up to one year. If the shareholders
vote to elect to carry the losses forward up to one year, and at the end of the
year, the losses are still more than one-third of the amount of the legal
reserves and capital, then we must reduce our legal reserves and capital by the
amount of the losses. However, as an S.p.A., we must maintain capital of at
least €120 thousand. If the amount of the losses would reduce our capital
to less than €120 thousand, then:
·
we would
need to increase our capital, which we could do by issuing new shares or having
our shareholders contribute additional capital to our company, although there
can be no assurance that we would be able to find purchasers for new shares or
that any of our current shareholders would be willing to contribute additional
capital; or
·
our
shareholders would need to convert our company to an “S.r.l”, a private limited
liability company, which has a lower capital requirement of €10 thousand;
or
·
if
neither of these options were taken, our shareholders or, if they do not so
resolve, a court of competent jurisdiction, could appoint a receivor to
liquidate our company.
The
contracts described below have been entered into by our company since January 1,
2005 and, as of the date of this report, contain provisions under which we have
an obligation or right which is or may be material to us. This
discussion is not complete and should be read in conjunction with the agreements
described below, each of which has been filed with the SEC as an exhibit to this
annual report.
License
and Distribution Agreements
On March 6, 2009, we entered into a
supply and distribution agreement with IDIS Limited, whereby IDIS will be the
exclusive supplier of defibrotide on a named patient supply basis in all
countries other than Europe and the Americas. Gentium will supply the
finished and labeled product to IDIS who will in turn provide the product
directly to hospitals in countries outside Europe and the Americas. IDIS
will maintain all relevant importation and regulatory licenses necessary to
perform this service. IDIS will also assist Gentium with various clinical
and regulatory obligations such as adverse event reporting. Gentium will
instruct IDIS the price to charge for defibrotide, and in some cases, whether
defibrotide will be given away free of charge. IDIS will invoice the
hospitals directly and in turn pay Gentium once IDIS collects the
receivable. Gentium will pay a fee to IDIS for each unit shipped and will
also pay IDIS a monthly service fee.
On February 2, 2009, we entered into a
technical transfer services agreement with Patheon International A.G., whereby
its affiliate, Patheon Italia S.p.A. (as subcontractor) will assume the fill and
finish of defibrotide in vials (currently performed by Sirton). Patheon
will perform the transfer of all analytical methods, will run a feasibility
batch and will eventually run validation batches which, if successful, will be
used for commercial sale upon final regulatory approval of defibrotide.
Patheon will also support Gentium in its regulatory filings by providing key
documentation, review of Gentium’s regulatory submissions and access to
regulators from the FDA and/or EMEA to inspect Patheon’s facility (the
Pre-Approval Inspection). Gentium will pay Patheon certain upfront and
milestones to compensate Patheon for the services it performs as well as the
capital expenditures it incurs. All equipment purchased by Patheon will
reside at Patheon but will be owned by Gentium.
On
October 12, 2007, we entered into another letter agreement with Sigma Tau
Pharmaceuticals, Inc., pursuant to which Sigma Tau Pharmaceuticals, Inc. agree
to reimburse us for 50% of certain costs relating to our Phase III clinical
trial of defibrotide to treat severe VOD.
On
January 2, 2006, we entered into a Contract to Supply Active Ingredients with
Sirton, pursuant to which we sell urokinase, calcium heparin, defibrotide,
sulglicotide and glucidamine to Sirton, which Sirton uses to produce specialty
pharmaceutical products. The agreement automatically renews each year
unless one party gives written notice of its intent to terminate the agreement
at least one month prior to the annual termination date. On December
1, 2007, we amended this agreement to delete references to
defibrotide.
On
December 28, 2006, we entered into a Master Agreement with Crinos S.p.A. whereby
we agreed to acquire the Italian marketing authorizations for defibrotide, as
well as certain other related assets, including trademarks for €16
million. This agreement expired on December 31,
2008. Crinos agreed to transfer the trademarks to us at the time of
the final payment. These trademarks were transferred on January 16,
2009. Crinos agreed to stop distributing the injectible formulation
of defibrotide starting on December 28, 2008, and the oral formulation of
defibrotide starting on December 31, 2008. Crinos agreed to
irrevocably waive and terminate its right of first refusal to market future
therapeutic indications for defibrotide in the European market that was set
forth in our License Agreement dated May 17, 2002 with Crinos. In
return, we agreed to pay Crinos a 1.5% royalty on net sales of defibrotide for
the treatment and prevention of VOD in Europe for seven years, starting with the
official launch date of treatment or prevention (whichever is first) of VOD in
Germany, France, Italy, the United Kingdom or Spain (whichever country such
product is first launched).
We also
entered into a Distribution and Promotion Agreement dated December 28, 2006 with
Crinos as part of the same transaction, whereby we agreed to sell the oral
formulation of defibrotide to Crinos, and allow Crinos to distribute such oral
formulation, until December 31, 2008, with certain exceptions for sales to
hospitals and otherwise as required by Italian law. In 2007 and 2008,
we earned revenues of an aggregate of €1.7 million and €1.9 million,
respectively, under this agreement.
Clinical
Trial Agreements
On March
14, 2007, we entered into a Master Services Agreement with MDS Pharma Services
(US), Inc. Under this agreement, MDS Pharma provides us with clinical
and regulatory consulting services, including with respect to our current Phase
III clinical trial of defibrotide to treat VOD with multiple organ failure in
the United States and the related historical arm control trial. In
2008, we incurred cost for an aggregate of $2.73 million under this
agreement.
Loan
Agreements
On April
20, 2006, we entered into a Financing Contract with Banca Intesa Medicredito
S.p.A. providing for a five year financing facility of up to €1 million to
finance our purchase and installation of two reactors in our manufacturing
facility. The facility has a five-year term and bears interest at the
three-month Euribor rate plus 1.7%. It is secured by Banca Intesa
debt securities in the aggregate amount of €525 thousand that we purchased and
which expire on May 10, 2011. We make installment payments on the
facility of €131 thousand every six months until its final maturity in April
2011. At December 31, 2008, the aggregate amount outstanding under
this facility was €656 thousand.
On June
14, 2006, we entered into a Loan Agreement with Banca Nazionale Del Lavoro
S.p.A. for a loan in the amount of €2.8 million. The loan is secured
by a mortgage on certain of our land and buildings. It bears interest
at the six month Euribor rate plus 1.00%, the principal of which will be repaid
in 14 installments, every six months, starting from December 27, 2007 until
final maturity in 2014 and the interest on which will be paid every six months
starting from June 27, 2006. At December 31, 2008, the amount
outstanding under this loan was €2.20 million.
On June
30, 2006, we obtained a loan in the amount of €750 thousand from San Paolo IMI
S.p.A. for the acquisition and installation of manufacturing
equipment. The loan bears interest at the three month Euribor rate
plus 1.20%. Beginning on June 15, 2008, the rate will be decreased to
1.02% over the
Euribor rate. The loan is payable in thirteen quarterly installments
of approximately €58 beginning on June 15, 2008 through June 15, 2011. Interest
is due quarterly beginning on September 15, 2006. The agreement
requires us to maintain a minimum level of net shareholders’ equity determined
in accordance with Italian generally accepted accounting
principles. At December 31, 2008, the amount outstanding under this
loan was €625 thousand.
On
December 20, 2006, we entered into three Loan Agreements with Banca Intesa
S.p.A. The first of these was for a loan in the amount of €230
thousand for a term of 60 months, maturing on December 31,
2006. Principal and interest are due in 20 quarterly installments
beginning on March 31, 2007. It bears interested at the three month
Euribor rate plus 1%. At December 31, 2008, the amount outstanding
under this loan was €144 thousand.
The
second Loan Agreement was for a loan in the amount of €500 thousand for a term
of 60 months, maturing on December 31, 2011. Principal and interest
are due in 60 monthly installments beginning on January 31, 2006. It
bears interest at the three month Euribor rate plus 1%. At December
31, 2008, the amount outstanding under this loan was €314 thousand.
The third
Loan Agreement was for a loan in the amount of €225 thousand for a term of 57
months (after a technical preamortization period from December 20, 2006 to March
15, 2007) maturing on December 15, 2011. It must be used with six
months for investments in the innovation of products and/or production processes
or to buy manufacturing equipment. Principal and interest payments
are due in quarterly installments starting on June 15, 2007. It bears
interest at the three month Euribor rate plus 0.8%. At December 31,
2008, the amount outstanding under this loan was €148 thousand.
In
December 2008, we received a loan from the Minister for University and Research
granted through IntesaSanpaolo. The loan is to be used for the research and
development of defibrotide to treat and prevent VOD and bears interest at 1.0%
per annum. We will need to repay this loan in seven installments, due every six
months, beginning January 2009. At December 31, 2008, the amount
outstanding under these loan was €147
thousand.
No
exchange control consent is required in Italy for the transfer to persons
outside of Italy of dividends or other distributions with respect to, or of the
proceeds from the sale of, shares of an Italian company.
Tax
Consequences Applicable to US Holders
The
following contains a description of the principal United States federal and
Italian tax consequences of the purchase, ownership and disposition of ADSs or
ordinary shares by a US holder, as defined below. This summary does not purport
to be a comprehensive description of all of the tax considerations that may be
relevant to a decision to purchase ADSs representing our ordinary shares and
each potential purchaser is therefore urged to consult its own tax
advisor.
In
particular, this summary deals only with US holders who will hold their ADSs as
a capital asset and does not address the tax treatment
of a US holder who:
·
owns ADSs
representing 10% or more of our voting shares (either directly or through
attribution);
·
holds
ADSs in connection with a permanent establishment or fixed base of business
located in Italy;
·
holds
ADSs in the ordinary course or as an integral part of the holder’s trade or
business or as part of a hedging, straddle, integrated or conversion
transaction;
·
who is
subject to special treatment under the US income tax laws (such as securities
dealers, brokers, traders that elect to mark to market, insurance companies,
banks, tax-exempt organizations, partnerships and other pass-through entities);
(v) whose functional currency is not the US dollar; or
·
is a
resident of Italy for purposes of Italian domestic law or the Income Tax
Convention, as defined above, or acts through an Italian permanent establishment
or fixed base to which the ADSs are connected.
In addition, the following discussion
does not address any aspect of state, local or non-US tax laws (other than
certain Italian tax laws) or any alternative minimum tax
consequences.
The
summary is based upon tax laws of the United States and the Republic of Italy
and on the provisions of the Income Tax Convention in each case as in effect on
the date hereof, all of which are subject to change (possibly with retroactive
effect). We will not update this summary to reflect changes in laws and if such
a change occurs, this summary could become inaccurate. In this
regard, a new tax treaty to replace the current Income Tax Convention was signed
on August 25, 1999, but has not yet been ratified. This new
treaty, if ratified, would not change significantly the provisions of the Income
Tax Convention that are discussed below. For purposes of these laws
and income tax conventions, beneficial owners of ADRs representing ADSs should
be treated as the beneficial owners of the ordinary shares represented by the
ADSs. Prospective purchasers of the ADSs are advised to consult their own tax
advisors as to the tax consequences of the purchase, ownership and disposition
of the ADSs including, in particular, state and local tax
consequences.
For
purposes of this section, a US holder means:
·
an
individual citizen or resident of the United States;
·
a
corporation (or other entity taxable as a corporation for U.S. federal income
tax purposes) organized in or under the laws of the US or any political
subdivision thereof;
·
an estate
the income of which is includible in gross income for US federal income tax
purposes regardless of its source;
·
a trust
if a US court is able to exercise primary jurisdiction over the administration
of the trust and one or more US persons have the authority to control all
substantial decisions of the trust; and
·
any other
person that is subject to US federal income taxation on a net income basis in
respect of income attributable to its ownership of the ADSs. A US owner means a
US holder that is considered a resident of the United States for purposes of the
Income Tax Convention and who is not subject to an anti-treaty shopping
provision.
Italian
Taxation of US Holders
General. Under
Italian law, financial instruments issued by an Italian company are subject to
the same tax regime as shares, provided that their remuneration is entirely
represented by a participation in the economic results of the
issuer. Pursuant to Article 10(3) of the Income Tax Convention, the
tax regime of dividends set forth therein applies to income from corporate
rights of an Italian company, which is subject to the same taxation treatment as
income from shares under the laws of Italy. One interpretation of
these laws would be that a beneficial owner of an ADS should be subject to the
same tax regime as a beneficial owner of a share for purposes of both Italian
law and the Income Tax Convention. However, no official
interpretation has been issued by the Italian tax authorities on this subject
matter to date
Income Tax Withholding on
Dividends. We do not anticipate making any distributions with
respect to our ordinary shares in the foreseeable future. However, if we were to
make distributions with respect to our ordinary shares, we would generally be
required under Italian law, except as otherwise discussed below, to apply a 27%
final withholding tax on payments made to holders of ADSs who are not residents
of Italy for tax purposes. Under Italian law, US owners can claim a refund of up
to four-ninths of the Italian withholding tax withheld on dividends (thereby
effectively reducing the rate of withholding to 15%) by presenting evidence to
the Italian tax authorities that income taxes have been fully paid on the
dividends in the country of residence of the US owners in an amount at least
equal to the total refund claimed. US holders should consult their own tax
advisers concerning the possible availability of this refund, which
traditionally has been payable only after extensive delays.
Under the
Income Tax Convention, dividends paid to US owners will be subject to Italian
withholding tax at a reduced rate of 15%. However, the amount that we will
initially make available to the depositary for payment to US owners will reflect
withholding at the 27% rate. US owners who comply with the certification
procedures described below may claim a refund of the difference between the 27%
rate and the 15% rate (referred to herein as a “treaty refund”). The
certification procedure will require the US owner to:
·
to obtain
from the US Internal Revenue Service (generally, by filing Form 8802) a
form of certification required by the Italian tax authorities with respect to
each dividend payment (Form 6166, printed on U.S. Department of Treasury
stationary), unless a previously filed certification is effective with respect
to the payment,
·
produce a
statement whereby the US owner represents that it is a US owner that does not
maintain a permanent establishment in Italy, and
·
set forth
certain other required information. The time for processing requests for
certification by the Internal Revenue Service can be lengthy. Accordingly, US
owners should begin the process of obtaining a certification from the Internal
Revenue Service as soon as possible after receiving instructions from the
depositary.
The
depositary’s instructions will specify certain deadlines for delivering the
documentation required to obtain a treaty refund, including the certification
that the US owners must obtain from the US Internal Revenue Service. In the case
of ADSs held by US owners through a broker or other financial intermediary, the
required documentation should be delivered to such financial intermediary for
transmission to the depositary. In all other cases, US owners should deliver the
required documentation directly to the depositary. We have agreed with the
depositary that if the required documentation is received by the depositary on
or within 30 days after the dividend payment date and, in our reasonable
judgment, such documentation satisfies the requirements for a refund of Italian
withholding taxes under the Income Tax Convention then in effect between the
United States and Italy, we will (within 45 days after that) pay an amount
equal to the treaty refund to the depositary for the benefit of the US owners
entitled thereto.
If the
depositary does not receive a US owner’s required documentation within
30 days after the dividend payment date, the US owner may for a short grace
period (specified in the depositary’s instructions) continue to claim an amount
equal to the treaty refund by delivering the required documentation (either
through the US owner’s financial intermediary or directly, as the case may be)
to the depositary. However, after this grace period, the treaty refund must be
claimed directly from the Italian tax authorities rather than through the
depositary. Expenses and extensive delays have been encountered by US owners
seeking refunds from the Italian tax authorities.
Income Tax on Capital
Gains. Under Italian law, capital gains realized by a person
who is not a resident of Italy (not having a permanent establishment or fixed
base in Italy to which the ADSs are connected) on the disposal of a “qualified”
shareholding contribute to determine the overall taxable income for income tax
purposes. Ministerial Decree April 2, 2008 – issued pursuant to Article 1,
paragraph 38 of the Law December 24, 2007 (Budget Law 2008) – sets out that
49.72% (it was 40% until 2008) of the capital gains would contribute to
determine the overall taxable income. This rate applies to capital gains
realized as from January 1, 2009. The 40%, previously in effect, still applies
to capital gains realized in connection with disposal deeds executed before
January 1, 2009. Losses can be offset against taxable gains for a
corresponding amount and, if in excess, can be carried forward up to four years.
A “qualified” shareholding is defined as ordinary shares and/or rights
(including ADSs) that represent more than 20% of share capital voting in the
ordinary shareholders’ meeting or 25% of a company’s total share capital. A
“disposal” of a qualified shareholding occurs if, in any 12-month period
following the date when a shareholding meets one of the thresholds illustrated
above, a shareholder disposes of shares or ADSs that, individually or in the
aggregate, constitute a “qualified” shareholding. Generally, Italian capital
gain tax, levied at a rate of 12.5%, is imposed on gains realized upon the
transfer or sale of “non-qualified” shareholdings whether held within or outside
Italy. A “non-qualified” shareholding is defined as an interest in ordinary
shares and/or rights (including ADSs) which does not reach the thresholds
described above for a qualified shareholding.
Furthermore,
pursuant to the Income Tax Convention, a US owner will not be subject to Italian
capital gain tax or to Italian individual or corporate income tax unless such US
owner has a permanent establishment or fixed base in Italy to which the owner’s
ADSs is effectively connected. To this end, US owners selling ADSs and claiming
benefits under the Income Tax Convention may be required to produce appropriate
documentation establishing that the above-mentioned conditions have been
met.
Estate and Gift
Tax. Inheritance and gift taxes, abolished in 2001, have been
re-introduced in the Italian system by Law Decree No. 262 of 3 October 2006
(converted into law, with amendments, by Law No. 286 of 24 November 2006), as
amended. Such taxes will apply on the overall net value of the relevant assets,
at the following rates, depending on the relationship between the testate (or
donor) and the beneficiary (or donee): (a) 4%, if the beneficiary (or donee) is
the spouse or a direct ascendant or descendant (such rate only applying on the
net asset value exceeding, for each person, €1 million); (b) 6%, if the
beneficiary (or donee) is a brother or sister (such rate only applying on the
net asset value exceeding, for each person, €100,000); (c) 6% if the beneficiary
(or donee) is another relative within the fourth degree or a direct
relative-in-law as well an indirect relative-in-law within the third degree; and
(d) 8% if the beneficiary is a person, other than those mentioned under (a), (b)
and (c), above. In case the beneficiary has a serious disability recognized
pursuant to applicable law, inheritance and gift taxes will apply on its portion
of the net asset value exceeding €1.5 million.
Transfer tax. In
connection with the Italian stamp duty tax on transfer of shares and ADSs,
according to article 37 of Law Decree no. 248 of December 31, 2007, converted
with amendments into Law no. 31 of February 28, 2008, the stamp duty has been
abolished with regards to contracts having as their object the transfer of
shares. In certain cases the relevant transfer acts would be subject
to the registration tax at a flat amount equal to €168.
United States Taxation of US Holders
Taxation of Distributions Made on
ADSs. As previously indicated, we do not anticipate making any
distributions with respect to our ordinary shares in the foreseeable future.
However, if we were to make distributions with respect to our ordinary shares,
the amount of such distribution (including the amount of any Italian taxes
withheld therefrom) would generally be includible in the gross income of a US
holder of an ADS (on the date of receipt by the depositary) as foreign source
dividend income to the extent that such distributions are paid out of our
current or accumulated earnings and profits, as determined for United States
federal income tax purposes. If the amount of any distribution paid on our
ordinary shares exceeds our current and accumulated earnings and profits, that
excess will first reduce a holder’s basis in its ADSs and, to the extent the
distribution is in excess of the holder’s basis, the excess will be treated as
capital gain. Dividends paid to US holders that are corporations will not be
eligible for the dividends-received deduction (which is generally applicable
only to dividends paid by US corporations).
The US
dollar amount of dividends received by individuals prior to January 1, 2011 with
respect to our shares or ADSs will be subject to taxation at a maximum rate,
15 percent, subject to exceptions for certain short-term and hedged stock
positions. Dividends received from a “qualified foreign corporation” generally
qualify for the reduced rate. In this regard, a foreign corporation that is not
a passive foreign investment company (PFIC) in the year that the dividends are
paid or in the preceding taxable year will generally constitute a qualified
foreign corporation with respect to any dividends paid by it on its stock if the
stock is readily tradable on an established securities market in the United
States. Because the ADSs are readily tradable on an established securities
market in the United States, we should constitute a qualified foreign
corporation and dividends paid by us prior to January 1, 2011 on our ordinary
shares and received by US holders of ADSs that are individuals should qualify
for the reduced rate, subject to above-mentioned exception for certain
short-term and hedged stock positions, so long as we are not a PFIC in the year
the dividends are paid or in the preceding taxable year (and so long as the ADSs
continue to be readily tradable on an established securities market). While we
do not believe that we are currently a PFIC, no assurances can be provided that
we will not constitute a PFIC in any year during which we make a distribution on
our ordinary shares (or in the taxable year preceding the year of
distribution).
The
amount of any cash distribution received in Euro with respect to the ADSs will
equal the US dollar value of the distribution, including the amount of any
Italian taxes withheld therefrom, determined at the spot exchange rate in effect
on the date that the distribution is received by the depositary (regardless of
whether or not the distribution is in fact converted into US dollars), and a US
holder will have a tax basis in the Euro equal to that same value. Upon a
subsequent sale or other disposition of the Euro, any gain or loss recognized by
the US holder will be ordinary income or loss for US federal income tax
purposes.
Subject
to general foreign tax credit limitations, a US holder may elect to credit any
Italian income taxes withheld on dividends paid with respect to the ADSs against
the holder’s US federal income tax liability (provided, inter alia, that the US
holder satisfies certain holding requirements with respect to the ADSs). Amounts
withheld in excess of the applicable rate under the income tax convention in
effect between the United States and Italy in respect of a US holder who
qualifies for the benefits of the convention will not be eligible for this
credit, but the US holder may claim a refund for this excess from the Italian
tax authorities. See “Item 10, Additional Information, Taxation, Italian
Taxation of US Holders, Income Tax Withholding on Dividends.” As an
alternative to claiming a foreign tax credit, a US holder may claim a deduction
for any withheld Italian income taxes, but only with respect to a year for which
the US holder elects to do so with respect to all of its foreign income taxes.
There are complex rules that limit the amount of foreign income taxes that may
be credited against a US holder’s federal income tax liability, and US holders
are strongly urged to consult their own tax advisors as to the applicability and
effect of these limitations.
Sales or other Disposition of the
ADSs. Subject to the discussion set forth below
regarding PFICs, a US holder will recognize capital gain or loss for US federal
income tax purposes on the sale or other disposition of the ADSs equal to the
difference between the amount realized on the disposition and the holder’s basis
in the ADSs. Such gain or loss will generally be long-term capital gain or loss
if the US holder has owned the ADSs for more than one year at the time of the
sale or other disposition.
Back-up
Withholding. A US holder may be subject to back-up withholding
at the applicable rate with respect to dividends paid on or proceeds from the
sale or other disposition of the ADSs unless the US holder (a) is an exempt
recipient or (b) provides a taxpayer identification number, certifies as to
no loss of exemption from back-up withholding and otherwise complies with all
applicable back-up withholding requirements.
Special Rules Applicable to
PFICs. Special federal income tax rules apply to US holders
who own stock in a PFIC. In this regard, a foreign corporation is generally
considered a PFIC for any taxable year in which 75% or more of its gross income
is passive income or in which 50% or more of the average value of its assets are
considered “passive assets” (generally assets that generate passive income or
assets held for the production of passive income). We believe that we currently
are not a PFIC and do not anticipate that we will become a PFIC in the
future.
However,
if we were to be classified as a PFIC, a US holder would generally be subject to
a special tax at ordinary income tax rates on so-called “excess
distributions”—which include both certain distributions received on the ADSs and
gain recognized on any sale or other disposition of the ADSs. The amount of
income tax on these excess distributions will be increased by an interest charge
to compensate for any tax deferral, calculated as if the excess distributions
were earned ratably over the period the US holder held the ADSs. In addition,
the tax on excess distributions treated as earned in prior years will be subject
to tax at the maximum rate applicable in the year in which such income is deemed
to have been earned. The harshness of the foregoing rules may be avoided if the
US holder properly elects to include in its ordinary income each year such
holder’s pro rata share of our ordinary earnings and to include in its long-term
capital gain income each year such holder’s pro rata share of our net capital
gain, whether or not distributed. However, we do not intend to provide US
holders with the information that they would need in order to make this
election. Alternatively, a holder of ADSs may avoid the tax consequences
detailed above by making a mark-to-market election, but only if the ADSs are
“regularly traded” for purposes of Section 1296 of the Code. No assurances
can be made that the ADSs will be regularly traded and, in any event, a US
holder should consult its own tax advisor before making any election under
Section 1296 of the Code.
In
addition, if we were to be classified as a PFIC, US holders would not qualify
for the benefit of the reduced US federal tax rate applicable to certain
dividends received by individuals through the end of 2008, as described above in
“United States Taxation of US Holders—Taxation of Distributions Made on the
ADSs.”
Not
applicable.
Not
applicable.
We are
subject to the periodic reporting and other informational requirements of the
Exchange Act applicable to a foreign private issuer. Under the Exchange Act, we
are required to file annual reports on Form 20-F within six months of our
fiscal year end, and we submit other reports and information under cover on
Form 6-K with the SEC. Copies of the registration statements, their
accompanying exhibits, as well as such reports and other information, when so
filed, may be inspected without charge and may be obtained at prescribed rates
at the SEC’s Public Reference Room located at 450 Fifth Street, N.W., Room 1200,
Washington, D.C. 20549. You may obtain information regarding the Washington,
D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330 or by contacting
the SEC at its website at www.sec.gov.
As a
foreign private issuer, we are exempt under the Exchange Act from, among other
things, the rules prescribing the furnishing and content of proxy statements,
and our executive officers, directors and principal shareholders are exempt from
the reporting and short-swing profit recovery provisions contained in
Section 16 of the Exchange Act. In addition, we will not be required under
the Exchange Act to file periodic reports and financial statements with the SEC
as frequently or as promptly as United States companies whose securities are
registered under the Exchange Act.
Currently,
we do not have any subsidiaries.
Market
risk represents the risk of loss arising from adverse changes in market rates
and foreign exchange rates. The carrying amounts of cash and cash
equivalents, accounts receivable and other receivables, and the interest rate on
our debt with floating rates represents our principal exposure to credit risk in
relation to our financial assets.
As of
December 31, 2008, substantially all of our cash and cash equivalents were held
in accounts at financial institutions located in the Republic of Italy and the
United States, that we believe are of acceptable credit quality. We
invest our cash in liquid instruments that meet high credit quality standards
and generally have maturity at the date of purchase of less than three
months. We are exposed to exchange rate risk with respect to certain
of our cash balances that are denominated in U.S. dollar. As of
December 31, 2008 we held a cash balance of $5.49 million that was denominated
in U.S. dollar. This dollar-based cash balance is available to be
used for future acquisitions and other liquidity requirements that may be
denominated in such currency. We are exposed to unfavorable and
potentially volatile fluctuations of the U.S. dollar against the Euro (our
functional currency). For any $.05 fluctuation of the U.S. dollar
against the Euro the impact on our cash balance on the U.S. dollar would be
approximately $.15 million.
As of
December 31, 2008, we had €4.09 million principal amount of floating
debts. Our exposure includes changes in interest rates, as borrowing
under our debts bear interest at floating rates based on Euribor plus an
applicable margin. We have managed our interest rate risk by entering
into interest cap agreements. Substantially all of our current
revenue generating operations are transacted in, and substantially all of our
assets and liabilities are denominated in the Euro. In the future, we
expect to transact business in the United States dollar and other
currencies. The value of the Euro against the United States dollar
and other currencies may fluctuate and is affected by, among other things,
changes in political and economic conditions. Any change in the value
of the Euro relative to other currencies that we transact business with in the
future could materially and adversely affect our cash flows, revenues and
financial condition. To the extent we hold assets denominated in
United States dollars, any appreciation of the Euro against the United States
dollar could result in a charge to our operating results and a reduction in the
value of our United States dollar denominated assets upon
remeasurement.
Not
applicable.
None.
None.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms and that such information is accumulated
and communicated to our management to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives, and management is required to apply its judgment in
evaluating the cost-benefit
relationship
of possible controls and procedures.
As
required by Rule 13a-15(b) of the Exchange Act, an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange
Act) as of the end of the period covered by this annual report was carried out
under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer. As described below, a
material weakness was identified in our internal control over financial
reporting, which is an important part of disclosure controls and procedures.
Based on the foregoing, the Company’s management, including the CEO and CFO,
concluded that our disclosure controls and procedures were not effective as of
December 31, 2008, the end of the period covered by this report, to achieve our
intended objectives.
In view
of the foregoing, we have extended our review process to evaluate and respond to
identified errors and to record necessary adjustments to our financial
statements and disclosures for the period ended December 31, 2008. Accordingly,
our management believes that the financial statements and related disclosures
included in this report fairly present in all material respects our financial
condition, results of operations and cash flows as of, and for, the periods
presented in this report.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f). Our internal
control system was designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with applicable accounting
principles.
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
Under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2008. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated
Framework”. Based on our assessment, and those criteria, management concluded
that the Company’s internal control over financial reporting was not effective,
as of December 31, 2008, based on those criteria, because there was a material
weakness in the operation of controls to review and approve the accounting for
certain non-routine and estimation processes. As a result, material adjustments
to several of our significant accounts and financial statement disclosures,
including intangible assets, accounts receivable from related parties, other
assets, and operating expenses, were required.
This
annual report on Form 20-F does not include an attestation report of our
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit us
to provide only management’s report in this annual report.
Changes
in Internal Control Over Financial Reporting
Except
for the matters described above, there has not been any change in our internal
control over financial reporting identified in the evaluation required by Rule
13a-15 or
Rule 15d-15 of the Exchange Act that occurred during the period covered by this
annual report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting. Management will take steps to address the material
weakness, such as providing for an earlier review process and believes that the
identified material weakness will be properly addressed by such review
process.
We have
both a Board of Statutory Auditors and an Audit Committee. Our board
of directors has determined that Gigliola Bertoglio and Malcolm Sweeney each
qualifies as an “audit committee financial expert” within the meaning of this
Item 16A.
Ms.
Bertoglio has served as one of our directors since December 2004. Her
current term as a director expires on the date of the ordinary shareholders’
meeting approving our 2008 Italian GAAP financial statements, which would
normally be held in April 2009. Ms. Bertoglio has been a self-employed
consultant since January 2003. From 1970 through 2002 she was employed by
Reconta Ernst & Young (the Italian affiliate of Ernst & Young
LLP) and its predecessors and was an audit partner beginning in 1977. From 1998
until leaving the firm, she was responsible for the firm’s Capital Market Group
in Italy. From 1989 to 1998, she was responsible for directing the firm’s
Professional Standards Group and member of the Accounting and Auditing Standards
Group of Ernst & Young International and as a coordinating audit
partner on clients with international operations. From 1977 to 1989,
Ms. Bertoglio was a partner of the Italian firm of Arthur Young &
Co. (the predecessor to Ernst & Young) where she was responsible for
directing the firm’s Professional Standards Group and serving in an advisory
role to the Accounting and Auditing Standards Group of Arthur Young
International and as a coordinating audit partner on clients with international
operations. From 1970 to 1977, she was an Audit Manager (1970 to 1974) and an
Audit Principal (1975 to 1977) with the Italian firm of Arthur Young &
Co. in its Rome and Milan offices. Prior to 1970, Ms. Bertoglio was
employed in the New York offices of Horwath & Horwath and LKH&H,
both of which were public accounting firms. She earned a degree in Public
Accounting from New York University and a Diploma in Accounting from Economics
Institution in Biella, Italy. She was a Certified Public Accountant (active
license to August 31, 2002, inactive after that) in the United States and
included in the Register of Authorized Auditors of Consob, the Italian Stock
Exchanges regulatory agency of public companies.
Mr.
Sweeney has served as one of our directors since April 2007. His current term
expires on the date of the ordinary shareholders’ meeting approving our 2008
Italian GAAP financial statements, which would normally be held in April 2009.
From 2001 to 2005, Mr. Sweeney was the Head of Financial Reporting and
Accounting of the Pharma Division at Novartis AG, a major international
pharmaceutical company. From 1990 to 2000, Mr. Sweeney worked for IMS
Health Inc., (formerly IMS International), a provider of market intelligence to
the pharmaceutical and healthcare industries, and associated
companies. He held the positions of Corporate Controller and Senior
Director of Finance for IMS Health Inc., as well as that of Leader of European
Shared Services for Dun and Bradstreet in 1994 and 1995 when Dun and Bradstreet
used to own IMS Health Inc. and several other major information service
providers. From 1974 to 1990, he held a variety of finance positions
for divisions of General Electric. Mr. Sweeney resides in the U.K.,
is a chartered accountant, admitted to the Institute of England & Wales in
1974 when working for KPMG (formerly Peat, Marwick, Mitchell and
Co.). He received a Bachelor of Science in Physics, Economics and
Philosophy from the University of Exeter in 1970.
We have adopted a code of ethics, as defined in Item 16B of Form
20-F under the Securities Exchange Act of 1934, as amended, that is applicable
to, among others, our Chief Executive Officer and Chief Financial
Officer. Copies of this code of ethics are available upon request by
writing to us at the address on the cover page of this annual report; we have
also posted the code of ethics on our website at
www.gentium.it. Material appearing on this website is not
incorporated by reference into this annual report. If we amend the
provisions of this code of ethics, or if we grant any waiver of such provisions,
we will disclose such amendment or waiver on our website at the same
address.
The
following table sets forth the fees contractually agreed to with our independent
auditors, Reconta Ernst & Young S.p.A. for the fiscal years ended
December 31, 2007 and 2008:
|
(in
thousands of Euros)
|
|
Year
ended December 31,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Audit
Fees
|
|
€ |
120 |
|
|
€ |
120 |
|
|
Audit-Related
Fees
|
|
|
5 |
|
|
|
- |
|
|
Internal
Control
|
|
|
35 |
|
|
|
35 |
|
|
Tax
Fees
|
|
|
-- |
|
|
|
-- |
|
|
All
Other Fees
|
|
|
-- |
|
|
|
-- |
|
|
Total
fees
|
|
€ |
160 |
|
|
€ |
155 |
|
In the
above table, in accordance with the SEC’s definitions and rules, “audit fees”
are fees for professional services for the audit of a company’s financial
statements, and for services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements. Reconta Ernst
& Young S.p.A. did not provide any tax compliance services or advice on
specific changes in tax regulations for the years ended December 31, 2007 and
2008.
To help
ensure the independence of our independent registered public accounting firm,
the Audit Committee is required to pre-approve all audit and non-audit services
to be performed for us by our independent registered public accounting firm. All
audit and permitted non-audit services, including the fees and terms thereof, to
be performed by our independent registered public accounting firm must be
approved in advance by the Audit Committee.
None of
the hours expended upon Reconta Ernst & Young S.p.A.’s engagement to audit
our financial statements for the year ended December 31, 2008 were
attributed to work performed by persons other than Reconta Ernst & Young
S.p.A.’s full-time, permanent employees.
Under
Italian law, our shareholders, not the audit committee, must be the party that
appoints, terminates and determines the compensation for our independent
accountants, although our audit committee does make recommendations on such
matters to our board of directors, which in turn makes recommendations to our
shareholders. As a result, our audit committee is not able to perform
all of the duties required by Rule 10A-3 of the Securities Exchange Act of
1934, as amended. Our audit committee has established procedures for the
receipt, retention and treatment of complaints regarding accounting, internal
accounting controls and auditing matters, has authority to engage independent
counsel and other advisors and determine the compensation of such advisors, as
well as its ordinary administrative expenses, and also oversees, with the board
of statutory auditors, our independent accountants (including resolution of
disagreements between management and the independent accountants regarding
financial reporting). Rule 10A-3 provides that foreign private
issuers with a board of statutory auditors established in accordance with local
law or listing requirements and meeting specified requirements with regard to
independence and responsibilities (including the performance of most of the
specific tasks assigned to audit committees by the rule, to the extent
prohibited by local law) (“Statutory Auditor Requirements”) are exempt from the
audit committee requirements established by the rule. Our board of
directors has determined that, because of the existence and nature of our board
of statutory auditors, together with the performance of other duties under Rule
10A-3 by our shareholders and the performance of the remaining duties by our
audit committee, we either satisfy Rule 10A-3 or qualify for an exemption
provided by Rule 10A-3 from the audit committee requirements of
Rule 10A-3.
Not
applicable.
Not
applicable.
The
Nasdaq Marketplace Rules set forth the corporate governance requirements of
companies listed on The Nasdaq Stock Market. Subsection (a)(1) of
Marketplace Rule 4350 provides that a foreign private issuer may follow its home
country practices in lieu of the corporate governance requirements of The Nasdaq
Stock Market, under certain circumstances. Pursuant to this
Marketplace Rule 4350(a)(1), we follow Italian practices in lieu of four of The
Nasdaq Stock Market’s corporate governance requirements pertaining to: (1)
quorum requirements, (2) our audit committee, (3) distribution of an annual
report and (4) solicitation of proxies and provision of proxy statements for
shareholder’s meetings.
Quorum
requirements.
The Nasdaq Stock
Market: Marketplace Rule 4350(f) sets forth The Nasdaq Stock
Market’s quorum requirement for shareholder meetings, stating that “in no case
shall such quorum be less than 33 1/3% of the outstanding shares of the
company’s common voting stock.”
Italian
practices: In accordance with Italian law, our shareholders
are entitled to attend and vote at an ordinary and extraordinary shareholders’
meetings. Shareholders are notified of two meeting dates for an
ordinary and extraordinary shareholders’ meeting (first and second
“calls”). The quorum for an ordinary meeting of shareholders on the
first call is 50% of the outstanding ordinary shares, while on a second call
there is no quorum requirement. The quorum for an extraordinary
meeting of shareholders is a majority of the outstanding ordinary shares on the
first call and more than one-third of the outstanding shares on a second
call.
Audit
committee.
The Nasdaq Stock
Market: Rule 4350(d)(3) of The Nasdaq Marketplace Rules
requires compliance with Rule 10A-3 of the Securities Exchange Act of 1934, as
amended, which requires that:
|
|
·
|
a
company’s audit committee be directly responsible for the appointment,
compensation, retention andoversight of the work of any registered public
accounting firm engaged (including resolution ofdisagreements between
management and the auditor regarding financial reporting) for the purpose
of preparing or issuing an audit report or performing other audit, review
or attest services for the company;
|
|
|
·
|
each such registered public accounting firm
must report directly to the audit
committee; |
|
|
·
|
that the audit committee
establish procedures for the receipt, retention and treatment of
complaints regardingaccounting, internal accounting controls or auditing
matters;
|
|
|
·
|
that the audit committee have authority to
engage independent counsel and other
advisors; |
|
|
·
|
that the audit committee determine
compensation for the independent accountants;
and |
|
|
·
|
that the audit committee determine
compensation for any advisors to the audit committee, as well as
itsordinary administrative expenses. |
Italian
practices: Under Italian law, our shareholders, not the audit
committee, must be the party that appoints, terminates and determines the
compensation for our independent accountants, although our audit committee does
make recommendations on such matters to our board of directors, which in turn
makes recommendations to our shareholders. As a result, our audit
committee is not able to perform all of the duties required by Rule 10A-3
of the Securities Exchange Act of 1934, as amended. Our audit committee directly
oversees our independent accountants, including the resolution of disagreements
between management and the independent accountants. Under Italian
law, our board of statutory auditors also oversees our independent accountants
with respect to our Italian GAAP financial
statements. Rule 10A-3 provides that foreign private issuers
with a board of statutory auditors established in accordance with local law or
listing requirements and meeting specified requirements with regard to
independence and responsibilities (including the performance of most of the
specific tasks assigned to audit committees by the rule, to the extent
prohibited by local law) (“Statutory Auditor Requirements”) are exempt from the
audit committee requirements established by the rule. Our board of
directors has determined that, because of the existence and nature of our board
of statutory auditors, together with the performance of other duties under Rule
10A-3 by our shareholders and the performance of the remaining duties by our
audit committee, we either satisfy Rule 10A-3 or qualify for an exemption
provided by Rule 10A-3 from the audit committee requirements of
Rule 10A-3.
Annual
Reports
The Nasdaq Stock
Market: Marketplace Rule 4350(b)(1)(A) requires issuers to
distribute to shareholders and Nasdaq an annual report containing audited
financial statements a reasonable period time prior to the issuer’s annual
meeting of shareholders.
Italian
practices: Italian practice is to file the issuer’s Italian
GAAP financial statements with its registered office (similar to a state
secretary of state in the United States) at least 15 days prior to the
shareholder’s meeting. We also intend to post such financial
statements on our website at such time.
Proxy Solicitation and Proxy
Statements
The Nasdaq Stock
Market: Marketplace Rule 4350(g) requires issuers to solicit
proxy statements for all meetings of shareholders and to provide copies of such
proxy solicitation to Nasdaq.
Italian
Practice: As a foreign private issuer, we are exempt from the
proxy rules of the Securities Exchange Act of 1934, as amended. We do
not solicit proxies from holders of our ordinary shares, nor are we required to
do so under Italian law. Our depositary, the Bank of New York, does
solicit proxies from ADS holders for instructions on how to vote its ordinary
shares at our shareholder meetings. The Bank of New York also
delivers reports from our board of directors regarding the agenda items for the
shareholder meetings to the ADS holders. We file these board reports,
the Bank of New York’s proxy card and any related items with the SEC on Form
6-K.
Not
applicable.
GENTIUM
S.p.A.
|
Exhibit
|
|
Description
|
|
Charter
documents
|
| |
|
1(i)
|
|
Articles
of Association of Gentium S.p.A., formerly known as Pharma Research S.r.l.
dated November 11, 1993, incorporated by reference to Exhibit 3(i) to
the Registration Statement on Form F-1, Registration No. 333-122233,
previously filed with the SEC on January 24, 2005.
|
| |
|
|
|
1(ii)
|
|
Amended
and Restated Bylaws of Gentium S.p.A. dated April 27, 2007, incorporated
by reference to Exhibit 1(ii) to the Annual Report on Form 20-F previously
filed with the SEC on April 30, 2007.
|
| |
|
|
|
American
Depositary Share Documents
|
| |
|
2.1
|
|
Form
of Deposit Agreement among Gentium S.p.A., The Bank of New York and the
owners and beneficial owners from time to time of American Depositary
Receipts (including as an exhibit the form of American Depositary
Receipt), incorporated by reference to Exhibit 4.6 to Amendment No. 5 to
the Registration Statement on Form F-1, Registration No. 333-122233,
previously filed with the SEC on June 9, 2005.
|
| |
|
|
|
2.2
|
|
Form
of American Depositary Receipt (see Exhibit 2.1).
|
| |
|
|
|
Security
Subscription Agreements
|
| |
|
2.3
|
|
Securities
Subscription Agreement among Gentium S.p.A. and the other parties thereto
dated as of May 31, 2006, incorporated by reference to Exhibit 4.9.1 to
the Registration Statement on Form F-3, Registration No. 333-135622, previously filed
with the SEC on July 6, 2006.
|
| |
|
|
|
2.4
|
|
Securities
Subscription Agreement among Gentium S.p.A. and the other parties thereto,
dated as of February 6, 2007, incorporated by reference to Exhibit 2 to
the report on Form 6-K, previously filed with the SEC on February 7,
2007.
|
| |
|
|
|
Warrants
|
| |
|
2.5
|
|
Form
of warrant (regarding Series A financing), incorporated by reference to
Exhibit 4.2.2 to the Registration Statement on Form F-1, Registration No.
333-122233, previously filed with the SEC on January 24,
2005.
|
| |
|
|
|
2.6
|
|
Form
of Representatives’ Purchase Option between Gentium S.p.A. and Maxim Group
LLC and I-Bankers Securities Inc., incorporated by reference to
Exhibit 1.2 to Amendment No. 5 to the Registration Statement on Form F-1,
Registration No. 333-122233, previously filed with the SEC on June 9,
2005.
|
| |
|
|
|
2.7
|
|
Form
of American Depositary Shares Purchase Warrant by Gentium S.p.A. dated
October 14, 2005, incorporated by reference to Exhibit 4.8.2 to the
Registration Statement on Form F-1, Registration No. 333-130796,
previously filed with the SEC on December 30, 2005.
|
| |
|
|
|
2.8.1
|
|
Form
of American Depositary Shares Purchase Warrant by Gentium S.p.A. dated
June 6, 2006, incorporated by reference to Exhibit 4.9.2 to the
Registration Statement on Form F-3, Registration No. 333-135622,
previously filed with the SEC on July 6, 2006.
|
| |
|
|
|
2.8.2
|
|
Form
of Ordinary Share Warrant by Gentium S.p.A. dated June 6, 2006,
incorporated by reference to Exhibit 4.9.3 to the Registration Statement
on Form F-3, Registration No. 333-135622, previously filed with the SEC on
July 6, 2006.
|
| |
|
|
|
Investor
Rights and Registration Rights Agreements
|
| |
|
2.9.1
|
|
Form
of Investors’ Rights Agreement between Gentium S.p.A. and holders of the
Series A senior convertible promissory notes and warrants dated
October 15, 2004, incorporated by reference to Exhibit 4.2.4 to the
Registration Statement on Form F-1, Registration No. 333-122233,
previously filed with the SEC on January 24,
2005.
|
|
Exhibit
|
|
Description
|
|
2.9.2
|
|
Amendment
No. 1 to Gentium S.p.A. Series A Senior Convertible Promissory
Notes, Warrants, Subscription Agreements and Investor Rights Agreements
among Gentium S.p.A. and the other parties thereto dated May 27,
2005, incorporated by reference to Exhibit 4.2.6 to Amendment No. 4 to the
Registration Statement on Form F-1, Registration No. 333-122233,
previously filed with the SEC on May 31, 2005.
|
| |
|
|
|
2.10
|
|
Investors’
Rights Agreement by and among Gentium S.p.A., Alexandra Global Master
Fund Ltd. and Generation Capital Associates made as of
January 10, 2005, incorporated by reference to Exhibit 4.3 to the
Registration Statement on Form F-1, Registration No. 333-122233,
previously filed with the SEC on January 24, 2005.
|
| |
|
|
|
2.11
|
|
Investors’
Rights Agreement by and among Gentium S.p.A. and Sigma Tau Finanziaria
S.p.A. made as of April 4, 2005, incorporated by reference to Exhibit
4.5 to Amendment No. 1 to the Registration Statement on Form F-1,
Registration No. 333-122233, previously filed with the SEC on April 7,
2005.
|
| |
|
|
|
2.12
|
|
Registration
Rights Agreement among Gentium S.p.A. and the other parties thereto made
and entered into as of October 14, 2005, incorporated by reference to
Exhibit 4.8.3 to the Registration Statement on Form F-1, Registration No.
333-130796, previously filed with the SEC on December 30,
2005.
|
| |
|
|
|
2.13
|
|
Registration
Rights Agreement among Gentium S.p.A. and the other parties thereto made
and entered into as of June 6, 2006, incorporated by reference to Exhibit
4.9.4 to the Registration Statement on Form F-3, Registration No.
333-135622, previously filed with the SEC on July 6,
2006.
|
| |
|
|
|
2.14
|
|
Registration
Rights Agreement among Gentium S.p.A. and the other parties thereto made
and entered into as of February 9, 2007, incorporated by reference to
Exhibit 4.10.3 to the Registration Statement on Form F-3, Registration No.
333-141198, previously filed with the SEC on March 9,
2007.
|
| |
|
|
|
Equity
Incentive and Stock Option Plans
|
| |
|
4.1.1
|
|
Amended
and Restated 2004 Equity Incentive Plan, incorporated by reference to
Exhibit 10.1 to the Registration Statement on Form S-8, Registration No.
333-137534, previously filed with the SEC on September 22,
2006.
|
| |
|
|
|
4.1.2
|
|
Amendment
No. 1 to Amended and Restated 2004 Equity Incentive Plan, made as of March
26, 2007, incorporated by reference to Exhibit 4.1.2 to the Annual Report
on Form 20-F for the year ended December 31, 2007, previously filed with
the SEC on April 30, 2007.
|
| |
|
|
|
4.2.1
|
|
Amended
and Restated Nonstatutory Share Option Plan and Agreement dated March 23,
2006, incorporated by reference to Exhibit 4.2 to the Annual Report on
Form 20-F for the year ended December 31, 2005, previously filed with the
SEC on May 30, 2006.
|
| |
|
|
|
4.2.2
|
|
Amendment
No. 1 to Amended and Restated Nonstatutory Share Option Plan and
Agreement, made as of March 26, 2007, incorporated by reference to Exhibit
4.2.2 to the Annual Report on Form 20-F for the year ended December 31,
2007, previously filed with the SEC on April 30, 2007.
|
| |
|
|
|
4.3
|
|
2007
Stock Option Plan, dated March 26, 2007, incorporated by reference to
Exhibit 4.42 to the Annual Report on Form 20-F for the year ended December
31, 2007, previously filed with the SEC on April 30,
2007.
|
| |
|
|
|
Loan
Agreements
|
| |
|
4.4
|
|
Ministry
for Universities, Scientific and Technological Research Loan granted to
Gentium S.p.A., successor in interest to Crinos Industria Farmacobiologica
S.p.A., by Sanpaolo Imi S.p.A., dated September 27, 2000,
incorporated by reference to Exhibit 10.6 to the Registration Statement on
Form F-1, Registration No. 333-122233, previously filed with the SEC on
January 24,
2005.
|
|
Exhibit
|
|
Description
|
|
4.5
|
|
Loan
Agreement between Banca Nazionale del Lavoro S.p.A. and Gentium S.p.A.
dated June 14, 2006 incorporated by reference to Exhibit 10.7.3 to the
Registration Statement on Form F-3, Registration No. 333-135622,
previously filed with the SEC on July 6, 2006.
|
| |
|
|
|
4.6
|
|
Loan
Agreement for €230,000 with Banca Intesa S.p.A., dated December 20, 2006,
incorporated by reference to Exhibit 2 to the report on Form 6-K,
previously filed with the SEC on February 2, 2007.
|
| |
|
|
|
4.7
|
|
Loan
Agreement for €500,000 with Banca Intesa S.p.A., dated December 20, 2006,
incorporated by reference to Exhibit 3 to the report on Form 6-K,
previously filed with the SEC on February 2, 2007.
|
| |
|
|
|
4.8
|
|
Loan
Agreement for €225,000 with Banca Intesa S.p.A., dated December 20, 2006,
incorporated by reference to Exhibit 4 to the report on Form 6-K,
previously filed with the SEC on February 2, 2007.
|
| |
|
|
|
4.9
|
|
Financing
Contract between Banca Intesa Mediocredito S.p.A. and Gentium S.p.A. dated
April 20, 2006, incorporated by reference to Exhibit 4.36.2 to the Annual
Report on Form 20-F for the year ended December 31, 2005, previously filed
with the SEC on May 30, 2006.
|
| |
|
|
|
4.10
|
|
Loan
Agreement, dated June 30, 2006, between San Paolo IMI S.p.A. and Gentium
S.p.A. , incorporated by reference to Exhibit 4.43 to the Annual Report on
Form 20-F for the year ended December 31, 2006, previously filed with the
SEC on April 30, 2007.
|
| |
|
|
|
Clinical
Trial Agreements
|
|
|
|
4.11.1
|
|
Master
Services Agreement, dated March 14, 2007, between MDS Pharma Services
(US), Inc. and Gentium S.p.A., incorporated by reference to Exhibit 1 to
the report on Form 6-K, previously filed with the SEC on March 20,
2007.
|
|
|
|
|
|
4.11.2
|
|
Statement
of Work, effective August 8, 2007, between Gentium S.p.A. and MDS Pharma
Services, Inc. (prospective arm), incorporated by reference to Exhibit 3
to the report on Form 6-K, previously filed with the SEC on August 22,
2007.
|
| |
|
|
|
4.11.3
|
|
Statement
of Work, effective August 8, 2007, between Gentium S.p.A. and MDS Pharma
Services, Inc. (historical arm), incorporated by reference to Exhibit 4 to
the report on Form 6-K, previously filed with the SEC on August 22,
2007.
|
| |
|
|
|
License
and Distribution Agreements
|
|
|
|
4.12.1
|
|
License
and Supply Agreement by and between Gentium S.p.A. and Sigma-Tau
Pharmaceuticals, Inc. (assignee of Sigma Tau Industrie Farmaceutiche
Riunite S.p.A.) dated December 7, 2001, incorporated by reference to
Exhibit 10.15 to the Registration Statement on Form F-1, Registration No.
333-122233, previously filed with the SEC on January 24,
2005.
|
|
|
|
|
|
4.12.2
|
|
Letter
Agreement, dated October 12, 2007, between Gentium S.p.A. and Sigma-Tau
Pharmaceuticals, Inc., incorporated by reference to Exhibit 99.4 to the
report on Form 6-K, previously filed with the SEC on December 12,
2007.
|
| |
|
|
|
4.13.1
|
|
Contract
to Supply Active Ingredients between Sirton Pharmaceuticals
S.p.A. and Gentium S.p.A. dated January 2, 2006, incorporated by
reference to Exhibit 4.24.2 to the Annual Report on Form 20-F for the year
ended December 31, 2005, previously filed with the SEC on May 30,
2006.
|
| |
|
|
|
4.13.2
|
|
Amendment
No. 1 to Contract to Supply Active Ingredients, effective as of December
7, 2007, by and between Gentium S.p.A. and Sirton Pharmaceuticals
S.p.A.
|
| |
|
|
|
4.14.1
|
|
Master
Agreement, dated December 28, 2006, among Gentium S.p.A., Crinos S.p.A.,
SFI Stada Financial Investments Ltd. and SFS Stada Financial Services
International Ltd., incorporated by reference to Exhibit 2 to the report
on Form 6-K, previously filed with the SEC on January 3,
2007.
|
| |
|
|
|
4.14.2
|
|
Distribution
Agreement, dated December 28, 2006, between Gentium S.p.A. and Crinos
S.p.A., incorporated by reference to Exhibit 6 to the report on Form 6-K,
previously filed with the SEC on January 3,
2007.
|
|
Exhibit
|
|
Description
|
|
4.21*
|
|
Technical
Transfer Services Agreement, dated February 2, 2009, between Gentium
S.p.A. and Patheon Italia S.p.A.
|
| |
|
|
|
4.22.1
|
|
Technical
Agreement, dated February 26, 2009, between Gentium S.p.A. and IDIS
Limited.
|
| |
|
|
|
4.22.2*
|
|
Supply
and Distribution Agreement, dated March 6, 2009, between Gentium S.p.A.
and IDIS Limited.
|
| |
|
|
|
Management
Services Agreements
|
| |
|
4.15
|
|
Service
Agreement between FinSirton S.p.A. and Gentium S.p.A. dated
January 2, 2006, incorporated by reference to Exhibit 10.25.2 to the
Annual Report on Form 20-F for the year ended December 31, 2005,
previously filed with the SEC on May 30, 2006.
|
| |
|
|
|
4.16
|
|
Service
Agreement between Sirton Pharmaceuticals S.p.A. and Gentium S.p.A. dated
January 2, 2006, incorporated by reference to Exhibit 10.26.2 to the
Annual Report on Form 20-F for the year ended December 31, 2005,
previously filed with the SEC on May 30, 2006.
|
| |
|
|
|
Leases
|
|
|
|
4.17
|
|
Commercial
Lease Contract between Gentium S.p.A. and Sirton Pharmaceuticals S.p.A.
dated January 1, 2005, incorporated by reference to Exhibit 10.33 to
Amendment No. 2 to the Registration Statement on Form F-1, Registration
No. 333-122233, previously filed with the SEC on May 10,
2005.
|
| |
|
|
|
4.18
|
|
Commercial
Lease Contract between Gentium S.p.A. and FinSirton S.p.A. dated
January 1, 2005, incorporated by reference to Exhibit 10.32 to
Amendment No. 2 to the Registration Statement on Form F-1, Registration
No. 333-122233, previously filed with the SEC on May 10,
2005.
|
|
|
|
|
|
4.19
|
|
Commercial
Lease Contract between Gentium S.p.A. and FinSirton S.p.A. dated January
1, 2007, incorporated by reference to Exhibit 4.32.2 (improperly coded as
Exhibit 4.43(2)) to the Annual Report on Form 20-F for the year ending
December 31, 2006, previously filed with the SEC on April 30,
2007.
|
| |
|
|
|
Miscellaneous
|
| |
|
4.20
|
|
Form
of indemnification agreement between Gentium S.p.A. and each officer and
director, incorporated by reference to Exhibit 10.34 to Amendment No. 2 to
the Registration Statement on Form F-1, Registration No. 333-122233,
previously filed with the SEC on May 10, 2005.
|
| |
|
|
|
Certifications
and Consents
|
| |
|
12.1
|
|
Chief
Executive Officer Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
| |
|
|
|
12.2
|
|
Chief
Financial Officer Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
| |
|
|
|
13.1
|
|
Chief
Executive Officer Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
| |
|
|
|
13.2
|
|
Chief
Financial Officer Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
| |
|
|
|
15(a)
|
|
Consent
of Reconta Ernst & Young S.p.A. dated March 30,
2009.
|
* Portions
of this exhibit have been omitted and filed separately with the Securities and
Exchange Commision pursuant to a request for confidential treatment.
The Board
of Directors and Shareholders of Gentium S.p.A.
We have
audited the accompanying balance sheets of Gentium S.p.A. as of December 31,
2008 and 2007, and the related statements of operations, shareholders’ equity,
and cash flows for each of the three years in the period ended December 31,
2008. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Gentium S.p.A. at December 31, 2008
and 2007, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2008, in conformity with U.S.
generally accepted accounting principles.
The accompanying financial statements
have been prepared assuming that Gentium S.p.A. will continue as a going
concern. As more fully described in Note 1, the Company has incurred recurring
operating losses and does not have sufficient cash to fund operations beyond
December 31, 2009. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard
to these matters also are described in Note 1. The 2008
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
Reconta
Ernst & Young S.p.A.
Milan,
Italy
March 30,
2009
GENTIUM
S.p.A.
|
Amounts
in thousands except share and per share data
|
|
As
of December 31,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
€ |
25,964 |
|
|
€ |
11,491 |
|
|
Accounts
receivable
|
|
|
805 |
|
|
|
625 |
|
|
Accounts
receivable from related parties, net
|
|
|
4,149 |
|
|
|
320 |
|
|
Inventories,
net
|
|
|
1,510 |
|
|
|
907 |
|
|
Prepaid
expenses and other current assets
|
|
|
4,844 |
|
|
|
2,178 |
|
|
Total
Current Assets
|
|
|
37,272 |
|
|
|
15,521 |
|
|
|
|
|
|
|
|
|
|
|
|
Property,
manufacturing facility and equipment, at cost
|
|
|
20,590 |
|
|
|
21,019 |
|
|
Less: Accumulated
depreciation
|
|
|
9,046 |
|
|
|
10,268 |
|
|
Property,
manufacturing facility and equipment, net
|
|
|
11,544 |
|
|
|
10,751 |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net of amortization
|
|
|
2,592 |
|
|
|
95 |
|
|
Available
for sales securities
|
|
|
525 |
|
|
|
510 |
|
|
Other
non-current assets
|
|
|
26 |
|
|
|
24 |
|
|
Total Assets
|
|
€ |
51,959 |
|
|
€ |
26,901 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
€ |
9,583 |
|
|
€ |
5,823 |
|
|
Accounts
payable to Crinos
|
|
|
4,000 |
|
|
|
4,000 |
|
|
Accounts
payable to related parties
|
|
|
2,095 |
|
|
|
325 |
|
|
Accrued
expenses and other current liabilities
|
|
|
1,223 |
|
|
|
810 |
|
|
Current
portion of capital lease obligations
|
|
|
107 |
|
|
|
65 |
|
|
Current
maturities of long-term debt
|
|
|
1,262 |
|
|
|
1,346 |
|
|
Total
Current Liabilities
|
|
|
18,270 |
|
|
|
12,369 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current maturities
|
|
|
4,421 |
|
|
|
3,268 |
|
|
Capital
lease obligations
|
|
|
223 |
|
|
|
158 |
|
|
Termination
indemnities
|
|
|
686 |
|
|
|
655 |
|
|
Total
Liabilities
|
|
|
23,600 |
|
|
|
16,450 |
|
| |
|
|
|
|
|
|
|
|
|
Share
capital (par value: €1.00; 15,111,292 and 18,454,292 shares authorized,
14,956,317 and 14,946,317 shares issued and outstanding at December
31, 2008 and 2007, respectively)
|
|
|
14,946 |
|
|
|
14,956 |
|
|
Additional
paid in capital
|
|
|
88,618 |
|
|
|
90,619 |
|
|
Accumulated
other comprehensive loss
|
|
|
(2 |
) |
|
|
(17 |
) |
|
Accumulated
deficit
|
|
|
(75,203 |
) |
|
|
(95,107 |
) |
|
Total
Shareholders’ Equity
|
|
|
28,359 |
|
|
|
10,451 |
|
|
Total Liabilities and
Shareholders’ Equity
|
|
€ |
51,959 |
|
|
€ |
26,901 |
|
The
accompanying notes are an integral part of these financial
statements.
GENTIUM
S.p.A.
|
|
|
For
the Year Ended December 31,
|
|
|
Amounts in
thousands except share and per share data
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Product
sales to related party
|
|
€ |
3,754 |
|
|
€ |
2,704 |
|
|
€ |
651 |
|
|
Product
sales to third parties
|
|
|
321 |
|
|
|
2,390 |
|
|
|
4,792 |
|
|
Total
product
sales
|
|
|
4,075 |
|
|
|
5,094 |
|
|
|
5,443 |
|
|
Other
revenues
|
|
|
249 |
|
|
|
2,515 |
|
|
|
1,995 |
|
|
Total
Revenues
|
|
|
4,324 |
|
|
|
7,609 |
|
|
|
7,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods
sold
|
|
|
3,092 |
|
|
|
4,584 |
|
|
|
5,596 |
|
|
Research
and
development
|
|
|
8,927 |
|
|
|
14,497 |
|
|
|
9,569 |
|
|
General
and
administrative
|
|
|
5,421 |
|
|
|
6,279 |
|
|
|
7,668 |
|
|
Depreciation
and
amortization
|
|
|
261 |
|
|
|
725 |
|
|
|
998 |
|
|
Charges
from related parties
|
|
|
854 |
|
|
|
748 |
|
|
|
537 |
|
|
Write-down
of assets
|
|
|
- |
|
|
|
13,740 |
|
|
|
3,403 |
|
|
|
|
|
18,555 |
|
|
|
40,573 |
|
|
|
27,771 |
|
|
Operating
loss
|
|
|
(14,231 |
) |
|
|
(32,964 |
) |
|
|
(20,333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
708 |
|
|
|
1,674 |
|
|
|
587 |
|
|
Foreign
currency exchange gain/(loss),
net
|
|
|
(627 |
) |
|
|
(4,001 |
) |
|
|
173 |
|
|
Interest
expense
|
|
|
(218 |
) |
|
|
(317 |
) |
|
|
(331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income tax
expense
|
|
|
(14,368 |
) |
|
|
(35,608 |
) |
|
|
(19,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
€ |
(14,368 |
) |
|
€ |
(35,608 |
) |
|
€ |
(19,904 |
) |
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per
share
|
|
€ |
(1.33 |
) |
|
€ |
(2.52 |
) |
|
€ |
(1.33 |
) |
|
Weighted
average shares used to compute basic and diluted net loss per
share
|
|
|
10,808,890 |
|
|
|
14,105,128 |
|
|
|
14,956,263 |
|
The
accompanying notes are an integral part of these financial
statements.
GENTIUM
S.p.A.
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
|
Amounts
in thousands except share and per share data
|
|
Shares
|
|
|
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Comprehensive income/(loss)
|
|
|
Total
Shareholders’ Equity
|
|
|
Balance
at December 31, 2005
|
|
|
9,611 |
|
|
€ |
9,611 |
|
|
€ |
33,090 |
|
|
€ |
(25,227 |
) |
|
€ |
- |
|
|
€ |
17,474 |
|
|
Unrealized
gains on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
32 |
|
|
Issuance
of ordinary shares in private placement, net
|
|
|
1,943 |
|
|
|
1,943 |
|
|
|
13,953 |
|
|
|
|
|
|
|
|
|
|
|
15,896 |
|
|
Issuance
of ordinary shares upon exercise of options
|
|
|
22 |
|
|
|
22 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
97 |
|
|
Issuance
of ordinary shares upon exercise of warrants
|
|
|
198 |
|
|
|
198 |
|
|
|
1,442 |
|
|
|
|
|
|
|
|
|
|
|
1,640 |
|
|
Stock
based compensation
|
|
|
|
|
|
|
|
|
|
|
916 |
|
|
|
|
|
|
|
|
|
|
|
916 |
|
|
Net
loss for 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,368 |
) |
|
|
|
|
|
|
(14,368 |
) |
|
Balance
at December 31, 2006
|
|
|
11,774 |
|
|
€ |
11,774 |
|
|
€ |
49,476 |
|
|
€ |
(39,595 |
) |
|
€ |
32 |
|
|
€ |
21,687 |
|
|
Unrealized
loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
(34 |
) |
|
Issuance
of ordinary shares in private placement, net
|
|
|
2,354 |
|
|
|
2,354 |
|
|
|
32,129 |
|
|
|
|
|
|
|
|
|
|
|
34,483 |
|
|
Issuance
of ordinary shares upon exercise of options
|
|
|
28 |
|
|
|
28 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
118 |
|
|
Issuance
of ordinary shares upon exercise of warrants, net
|
|
|
790 |
|
|
|
790 |
|
|
|
5,119 |
|
|
|
|
|
|
|
|
|
|
|
5,909 |
|
|
Stock
based compensation
|
|
|
|
|
|
|
|
|
|
|
1,804 |
|
|
|
|
|
|
|
|
|
|
|
1,804 |
|
|
Net
loss for 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,608 |
) |
|
|
|
|
|
|
(35,608 |
) |
|
Balance
at December 31, 2007
|
|
|
14,946 |
|
|
€ |
14,946 |
|
|
€ |
88,618 |
|
|
€ |
(75,203 |
) |
|
€ |
(2 |
) |
|
€ |
28,359 |
|
|
Unrealized
loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
|
(15 |
) |
|
Issuance
of ordinary shares upon exercise of options
|
|
|
10 |
|
|
|
10 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
38 |
|
|
Stock
based compensation
|
|
|
|
|
|
|
|
|
|
|
1,973 |
|
|
|
|
|
|
|
|
|
|
|
1,973 |
|
|
Net
loss for 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,904 |
) |
|
|
|
|
|
|
(19,904 |
) |
|
Balance
at December 31, 2008
|
|
|
14,956 |
|
|
€ |
14,956 |
|
|
€ |
90,619 |
|
|
€ |
(95,107 |
) |
|
|
(17 |
) |
|
€ |
10,451 |
|
The
accompanying notes are an integral part of these financial statements.
GENTIUM
S.p.A.
|
Amounts
in thousands except share and per share data
|
|
For
the Year Ended December 31,
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
€ |
(14,368 |
) |
|
€ |
(35,608 |
) |
|
€ |
(19,904 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-down
of intangible assets
|
|
|
- |
|
|
|
13,740 |
|
|
|
2,175 |
|
|
Write-down
of inventory
|
|
|
- |
|
|
|
- |
|
|
|
1,228 |
|
|
Unrealized
foreign exchange
loss/(gain)
|
|
|
509 |
|
|
|
2,951 |
|
|
|
(337 |
) |
|
Depreciation
and
amortization
|
|
|
1,008 |
|
|
|
1,538 |
|
|
|
1,699 |
|
|
Stock
based compensation
|
|
|
908 |
|
|
|
1,804 |
|
|
|
1,973 |
|
|
Deferred
revenue
|
|
|
(143 |
) |
|
|
(140 |
) |
|
|
- |
|
|
Loss/(Gain)
on fixed asset disposal
|
|
|
(23 |
) |
|
|
(15 |
) |
|
|
7 |
|
|
Adjustment
of inventory to net realizable value
|
|
|
- |
|
|
|
206 |
|
|
|
- |
|
|
Non
cash interest expense
|
|
|
4 |
|
|
|
- |
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
- |
|
|
|
- |
|
|
|
1,783 |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,830 |
) |
|
|
(1,249 |
) |
|
|
(1,001 |
) |
|
Inventories
|
|
|
129 |
|
|
|
(217 |
) |
|
|
(625 |
) |
|
Prepaid
expenses and other current and noncurrent assets
|
|
|
(482 |
) |
|
|
(3,426 |
) |
|
|
568 |
|
|
Accounts
payable and accrued
expenses
|
|
|
2,165 |
|
|
|
10,243 |
|
|
|
(310 |
) |
|
Termination
indemnities
|
|
|
(24 |
) |
|
|
4 |
|
|
|
(31 |
) |
|
Net
cash used in operating
activities
|
|
|
(12,147 |
) |
|
|
(10,169 |
) |
|
|
(12,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(1,445 |
) |
|
|
(2,890 |
) |
|
|
(437 |
) |
|
Intangible
assets
expenditures
|
|
|
(503 |
) |
|
|
(215 |
) |
|
|
(154 |
) |
|
Proceeds
on disposal of fixed
assets
|
|
|
23 |
|
|
|
15 |
|
|
|
- |
|
|
Purchases
of marketable
securities
|
|
|
(530 |
) |
|
|
- |
|
|
|
- |
|
|
Restricted
cash
|
|
|
(4,000 |
) |
|
|
4,000 |
|
|
|
- |
|
|
Acquisition
of Crinos
Assets
|
|
|
(4,000 |
) |
|
|
(12,000 |
) |
|
|
- |
|
|
Net
cash used in investing
activities
|
|
|
(10,455 |
) |
|
|
(11,090 |
) |
|
|
(591 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from initial public offering and private placements, net of offering
expenses
|
|
|
15,896 |
|
|
|
34,483 |
|
|
|
- |
|
|
Proceeds
from warrant and stock option exercises,
net
|
|
|
1,736 |
|
|
|
6,027 |
|
|
|
38 |
|
|
Repayments
of long-term
debt
|
|
|
(681 |
) |
|
|
(724 |
) |
|
|
(1,216 |
) |
|
Proceeds
(repayment) of/from short term borrowings
|
|
|
- |
|
|
|
279 |
|
|
|
(279 |
) |
|
Principal
payment of capital lease
obligation
|
|
|
(42 |
) |
|
|
(89 |
) |
|
|
(107 |
) |
|
Early
extinguishment of long term debt
|
|
|
(1,868 |
) |
|
|
- |
|
|
|
- |
|
|
Proceeds
from long-term debt
|
|
|
5,518 |
|
|
|
- |
|
|
|
147 |
|
|
Net
cash/(used by financing
activities)
|
|
|
20,559 |
|
|
|
39,976 |
|
|
|
(1,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in cash and cash
equivalents
|
|
|
(2,043 |
) |
|
|
18,717 |
|
|
|
(14,783 |
) |
|
Effect
of exchange rate on cash and cash equivalents
|
|
|
(537 |
) |
|
|
(2,958 |
) |
|
|
310 |
|
|
Cash
and cash equivalents, beginning of
period
|
|
|
12,785 |
|
|
|
10,205 |
|
|
|
25,964 |
|
|
Cash
and cash equivalents, end of
period
|
|
€ |
10,205 |
|
|
€ |
25,964 |
|
|
€ |
11,491 |
|
|
Amounts
in thousands
|
|
For
The Years Ended December 31,
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
€ |
219 |
|
|
€ |
320 |
|
|
€ |
308 |
|
|
Supplemental
disclosure of non cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
acquired under lease obligations
|
|
€ |
132 |
|
|
€ |
328 |
|
|
€ |
- |
|
|
Fair
value of warrants issued with shares
|
|
|
715 |
|
|
|
- |
|
|
|
- |
|
The
accompanying notes are an integral part of these financial
statements.
GENTIUM
S.p.A.
For
the Three Years Ended December 31, 2008
(All
amounts in thousands of Euro or U.S. dollars unless specified
otherwise)
1. BUSINESS
AND BASIS OF PRESENTATION
Basis of
Presentation: Gentium S.p.A. (“Gentium,” the “Company,” “we,” or “our”) is a biopharmaceutical
company focused on the research, development and manufacture of drugs to treat
and prevent a variety of vascular diseases and conditions related to cancer and
cancer treatments. Our primary focus is on development of
defibrotide, a DNA based drug derived from pig intestines, to treat and prevent
a disease called hepatic veno-occlusive disease, or VOD, a condition in which
some of the veins in the liver are blocked as a result of cancer treatments such
as chemotherapy or radiation treatments that are given prior to stem cell
transplantation. Severe VOD is the most extreme form of VOD and is
associated with multiple-organ failure. We are concluding a Phase III
clinical trial of defibrotide to treat severe VOD in the United States, Canada
and Israel, but do not believe that this current Phase III clinical trial will
produce sufficient data to obtain regulatory approval in the United States or
Europe; however we do expect to utilize this data as supportive data for future
clinical trials. We are also conducting a Phase II/III clinical trial
of defibrotide in Europe to prevent VOD in children, which we believe could
provide contingent regulatory approval in Europe upon positive
data. We are currently working on a revised strategy with our
commercial partner regarding the treatment indication of
defibrotide.
We have a
plant in Italy where we manufacture active pharmaceutical ingredients, which are
used to make the finished forms of various drugs. One of those active
pharmaceutical ingredients is defibrotide. The other active
pharmaceutical ingredients that we manufacture for sale are urokinase, calcium
heparin, sodium heparin and sulglicotide. We sell these other active
pharmaceutical ingredients to other companies to be made into various
drugs. All of the Company’s operating assets are located in
Italy.
The
accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. These
financial statements are denominated in the currency of the European Union (the
Euro or €). Unless otherwise indicated, all amounts are reported in
thousands of Euro or US$, except share and per share data
Going Concern Uncertainty and
Management’s Plan: We have prepared our financial statements
assuming that we will continue as a going concern, which contemplates
realization of assets and satisfaction of liabilities in the normal course of
business. We have
accumulated a deficit €95,107 since inception and expect to
continue to incur net
operating losses for the foreseeable future and may never become profitable. We
have not generated any revenues from our primary product candidate, other than
for limited use in Italy using the same active pharmaceutical
ingredient, and are dependent upon significant
financing or alternative funding to provide the working capital necessary to
execute our business plan. In addition, if we do not meet the
requirements for continued listing on Nasdaq, the Company’s ADR could be delisted from the Nasdaq Global
Market. As of the date of this report, we have approximately
€4.5 million of cash and
cash equivalent to fund our operations. We currently anticipate that our cash
and cash equivalents as of the date of this report are sufficient to
meet our anticipated working capital and
operating needs through August of 2009. This projection is based on the
Company’s current cost structure and the
Company’s current expectations regarding
expenses and revenues. Accordingly, if we do not obtain sufficient funding in the near future, we will
not be able to sustain our operations and would be required to cease our
operations and/or seek bankruptcy protection. Given the difficult
current economic environment, we believe that it will be difficult to
raise additional funds and there can be no
assurance as to availability of additional financing or the terms upon which
additional financing may be available. However, we will continue to
explore all financing and partnering opportunities that are available
to us, if any.
As a result of these conditions, there
is substantial doubt regarding the Company’s ability to continue as a going
concern. The accompanying financial statements do not include any adjustment to
reflect the possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates and
Reclassification: The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make judgments, estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual amounts and results could differ from those
estimates.
Certain
reclassification of prior period amounts have been made to the Company’s
financial statements to conform to the current period
presentation.
Segment
information: Statement of Financial Accounting Standards
(“SFAS”)
No. 131, “Disclosure
about Segments of an Enterprise and Related Information,” establishes
standards for reporting information on operating segments in interim and annual
financial statements. The Company’s chief operating decision makers review the
profit and loss and manage the operations of the Company on an aggregate basis.
Accordingly, the Company operates in one segment, which is the biopharmaceutical
industry.
Cash and Cash
Equivalents: Cash and cash equivalents include
highly liquid, temporary cash investments having original maturity dates of
three months or less. For reporting purposes, cash equivalents are stated at
cost plus accrued interest, which approximates fair value.
Concentration of Credit
Risk:
Financial Instruments that potentially subject the Company to concentrations of
credit risks consist principally of cash, cash equivalents, marketable
securities and trade receivables. The Company has cash investments policies that
limit investments to short-term low risk instruments. The Company performs
ongoing credit evaluations of other customers and maintains allowances for
potential credit losses. Collateral is generally not required. Trade receivables
from one foreign customer are guaranteed by a letter of credit from a primary
bank institution.
Inventories: Inventories
consist of raw materials, semi-finished and finished active pharmaceutical
ingredients. The Company capitalizes inventory costs associated with certain
by-products, based on management’s judgment of probable future commercial use
and net realizable value. Inventories are stated at the lower of cost or market,
cost being determined on an average cost basis. The Company periodically reviews
its inventories and items that are considered outdated or obsolete are reduced
to their estimated net realizable value. The Company estimates reserves for
excess and obsolete inventories based on inventory levels on hand, future
purchase commitments, and current and forecasted product demand. If an estimate
of future product demand suggests that inventory levels are excessive, then
inventories are reduced to their estimated net realizable value.
Property, Manufacturing Facility and
Equipment: Property and equipment are carried at
cost, subject to review for impairment of significant assets whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. Repairs and maintenance are charged to operations as incurred,
and significant expenditures for additions and improvements are capitalized if
they extend the useful life or capacity of the asset. Leasehold improvements are
amortized over the economic life of the asset or the lease term, whichever is
shorter. Depreciation is calculated on a straight-line basis over the estimated
useful life of the assets, ranging from five to twenty years.
The cost
of property, manufacturing facility and equipment also includes a proportionate
share of the Company’s financing costs, as required by SFAS No. 34, “Capitalization of Interest
Cost”. The amount of interest cost to be capitalized for qualifying
assets is that portion of the interest cost incurred during the assets’
acquisition periods that could have been avoided if expenditures for the assets
had not been made. Interest expense capitalized is amortized over the same life
as the underlying constructed asset.
Computer
Software: The Company accounts for computer software costs in
accordance with AICPA Statement of Position (“SOP”) 98-1, “Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use”. SOP 98-1
requires the capitalization of costs relating to certain activities of
developing and obtaining internal use software that were incurred during the
application development stage. Capitalized costs of computer software
obtained for internal use are included in property, manufacturing facility and
equipment and amortized over the estimated useful life of the
software.
Intangibles: Intangible
assets are stated at cost and amortized on a straight-line basis over their
expected useful life, estimated to be five years for patent rights and five to
ten years for licenses and trademarks.
Impairment of Long-lived Assets,
including Intangibles: The Company’s long-lived assets consist
primarily of intangible assets and property and equipment. In accordance with
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,”
the Company evaluates its ability to recover the carrying value of long-lived
assets used in its business, considering changes in the business environment or
other facts and circumstances that suggest their value may be impaired. If this
evaluation indicates the carrying value will not be recoverable, based on the
undiscounted expected future cash flows estimated to be generated by these
assets, the Company will reduce the carrying amount to the estimated fair
value.
Marketable
Securities: The Company’s marketable securities are classified
as securities available for sale in non-current assets and are carried at fair
value based on market prices. Unrealized gains and losses (which are deemed to
be temporary), if any, are reported in other comprehensive income or loss as a
separate component of shareholders’ equity.
A decline
in the market value of any available for sale securities below cost that is
deemed to be other than temporary results in a reduction in the carrying amount
to fair value. The impairment would be charged to earnings and a new cost basis
for the securities established. Factors evaluated to determine if an impairment
is other than temporary include significant deterioration in the credit rating,
asset quality, or business prospects of the issuer; adverse changes in the
general market condition in which the issuer operates; the intent and ability to
retain the investment for a sufficient period of time to allow for recovery in
the market value of the investment; and any concerns about the issuer’s ability
to continue as a going concern.
Revenue
Recognition: The Company sells its products to a
related party, Sirton (see Note 3). The Company also recognizes revenue from the
sale of products to third parties and from collaborative arrangements. Revenues
from product sales are recognized at the time of product shipment. Collaborative
arrangements with multiple deliverables are divided into separate units of
accounting if certain criteria are met, including whether the delivered element
has stand-alone value to the customer and whether there is objective and
reliable evidence of the fair value of the undelivered items. The consideration
received from these arrangements is allocated among the separate units based on
their respective fair value, and the applicable revenue recognition criteria are
applied to each separate unit. Advance payments received in excess of amounts
earned are classified as deferred revenue until earned. The Company’s revenue
recognition policies for its various types of revenue streams are as
follows:
The
Company recognizes revenue from product sales when there is persuasive evidence
that an arrangement exists, delivery has occurred and title passes to the
customer, the price is fixed or determinable, collectibility is reasonably
assured, and the Company has no further obligations. Costs incurred by the
Company for shipping and handling are included in cost of goods
sold.
The
Company recognizes revenue from royalties based on the licensees’ sales of the
Company’s products or technologies. Royalties are recognized as earned in
accordance with the contract terms when royalties from licensees can be reliably
measured and collectibility is reasonably assured.
Revenues
from collaborative arrangements generally include upfront fees, performance
milestone payments, reimbursement of research costs and continuing license and
manufacturing fee arrangements if the research and development efforts ever
reach the commercialization phase.
Sales of
licensing rights for which no further performance obligations exist are
recognized as revenues on the earlier of when the payment is received or
collection is assured. Nonrefundable upfront licensing fees that require the
Company’s continuing involvement in the form of research and development or
manufacturing efforts are recognized as revenues:
|
·
|
ratably
over the development period if the development risk is
significant,
|
|
·
|
ratably
over the manufacturing period or estimated product useful life if
development risk has been substantially eliminated,
or
|
|
·
|
based
upon the level of research services performed during the period of the
research contract.
|
Performance
based milestone payments are recognized as revenue when the performance
obligation, as defined in the contract, is achieved. Performance obligations
typically consist of significant milestones in the development life cycle of the
related technology, such as initiation of clinical trials, filing for approval
with regulatory agencies and obtaining such approvals.
Revenues
are recorded net of applicable allowance for contractual adjustments entered
into with customers. We establish a reserve for this discount, which is
classified in accrued expenses and other current liabilities in our balance
sheet and as a reduction of gross product revenue. Our product revenue reserve
is based on estimates of the amounts earned or to be claimed on the related
sales. These estimates take into consideration current contractual requirements,
and forecasted customer buying patterns. If actual results vary, we may need to
adjust these estimates, which could have an effect on earnings in the period of
the adjustment.
Research and
Development: Research and development expenditures
are charged to operations as incurred. Research and development expenses consist
of costs incurred for proprietary and collaborative research and development,
including activities such as product registration and investigator-sponsored
trials. Research and development expenses include salaries, benefits and other
personnel related costs, clinical trial and related trial product manufacturing
costs, contract and other outside service fees, employee stock based
compensation expenses and allocated facilities and overhead costs, offset by
research and development tax credit due from the Italian Tax
Authorities.
Clinical Trial
Accruals: The Company accrues for the costs of
clinical studies conducted by contract research organizations based on the
estimated costs and contractual progress over the life of the individual study.
These costs can be a significant component of research and development
expenses.
Income
Taxes: The Company uses the liability method of
accounting for income taxes, as set forth in SFAS No. 109, “Accounting for Income
Taxes.” Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences related to the temporary
differences between the carrying amounts and the tax basis of assets and
liabilities and net operating loss carry-forwards, all calculated using
presently enacted tax rates. Valuation allowances are established when necessary
to reduce deferred tax assets when it is considered more likely than not that
tax assets will not be recoverable.
Foreign currency
transactions: The Company has no foreign
subsidiaries and, therefore, has no translation adjustment in the financial
statements. However, net realized and unrealized gains and losses resulting from
foreign currency transactions that are denominated in a currency other than the
Company’s functional currency, the Euro, are included in the statements of
operations.
Share Based
Compensation: The Company has always accounted
for share based compensation on the basis of fair value, previously under SFAS
123 and as of July 1, 2005, under SFAS 123I, “Share Based
Payments”. The adoption of SFAS 123R did not have a
significant impact on the Company as the fair valuations previously used to
estimate the fair value of stock based compensation were unchanged. Compensation
expense for awards that are ultimately expected to vest is recognized as expense
on a straight-line basis over the requisite service period of the equity
compensation award, which is generally the vesting period.
From time to time, the
Company grants options to persons other than officers, employees and directors,
such as consultants. Grants of equity instruments to such persons are
also accounted for under EITF 96-18, “Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”. Under the EITF, equity
instruments granted to such persons requires the measuring of the fair value of
that instrument at the earlier of either i) the date at which a commitment for
performance by the counterparty to earn the equity instruments is reached (a
“performance commitment”); or ii) the date at which the counterparty’s
performance is complete. Fair value of the option grant is estimated
on the grant date using the Black-Scholes option-pricing model. The
Black-Scholes model takes into account volatility in the price of the Company’s
stock, the risk-free interest rate, the estimated life of the option, the
closing market price of the Company’s stock and the exercise price.
Fair Value of Financial
Instruments: The carrying amounts of cash and cash
equivalents, accounts receivables, prepaid expenses, other current assets,
accounts payable and accrued expenses approximate fair values due to the
short-term maturities of these instruments. Marketable securities are carried at
the market price.
Comprehensive
Income: Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, or SFAS130, requires us to
display comprehensive income (loss) and its components as part of our financial
statements. Comprehensive income (loss) is comprised of net income
(loss) and other comprehensive income or (loss) (or “OCI”). OCI
includes certain changes in stockholders’ equity that are excluded from net
loss. Specifically, we include only unrealized gains or losses on our
available for sale securities in OCI. Other comprehensive income
(loss), net of tax, for the years ended December 31, 2006, 2007 and 2008, was
€(14,336), €(35,642) and €(19,853), respectively.
Loss Per
Share:
The Company computes loss
per share in accordance with the provisions of
SFAS No. 128, “Earnings per
Share.” Basic
net loss per share is based upon the weighted-average number of common shares
outstanding and excludes the effect of dilutive common stock issuable from stock options and
warrants,. In computing diluted loss per share, only potential common shares
that are dilutive, or those that reduce earnings per share, are included. The
issuance of common stock from stock options and warrants, is
not assumed if the result is
anti-dilutive, such as when a loss is reported
Recently Issued Accounting
Standards:
In December 2007, the FASB ratified the
final consensuses in Emerging Issues Task Force (EITF) Issue No. 07-1,
“Accounting for
Collaborative Arrangements” (EITF 07-1), which provides guidance
for the income statement presentation of transactions with third parties and
payments between parties to a collaborative arrangement, along with disclosure
of the nature and purpose of the arrangement. EITF 07-1 is effective for us beginning
January 1, 2009. We do not expect this pronouncement to have a
material effect on our financial statements.
Effective January 1, 2008 we implemented
SFAS No. 157, “Fair Value
Measurements” (FAS 157), for our financial assets and liabilities that are re-measured
and reported at fair value at each reporting period, and non-financial assets
and liabilities that are re-measured and reported at fair value at least
annually. In accordance with the provisions of FSP FAS 157-2, Effective Date of FASB Statement
No. 157, we deferred the implementation of SFAS 157 as it relates to
our non-financial assets and non-financial liabilities that are recognized and
disclosed at fair value in the financial statements on a nonrecurring basis
until January 1, 2009. We do not expect this pronouncement to
have a material effect on our financial statements.
In March 2008, the FASB issued SFAS No.
161, Disclosure About
Derivate Instruments and Hedging Activities- an amendment of SFAB Statement No.
133,
which enhances the
disclosure requirements for derivates instruments and hedging activities. This
standard is effective for us beginning January 1, 2009. We do not expect this
pronouncement to have a material effect on our financial
statements.
3. RELATED
PARTIES
The
Company has significant relationships with two privately owned Italian
companies, FinSirton and its wholly owned subsidiary, Sirton. FinSirton, the
parent company of several businesses, is the Company’s largest shareholder
(approximately 25% ownership at December 31, 2008) and was originally the
Company’s sole shareholder. The Company’s Chief Executive Officer serves in the
same capacity for FinSirton and is a member of FinSirton’s Board of
Directors.
Historically,
FinSirton and Sirton have provided the Company with a number of business
services such as purchasing, logistics, quality assurance, quality control,
analytical assistance for research and development, and regulatory services as
well as office space, personnel, administrative services, information technology
systems and accounting services. Although the Company has
substantially reduced the functions and activities provided by FinSirton and
Sirton, the Company still depends on Sirton for certain infrastructure costs and
quality control. These service agreements have recurring one year
terms that may be terminated by either party upon written notice to the other
party at least one month prior to the expiration of the term. The
cost of such services are included in charges from related parties in
accompanying statements of operations.
The
Company has historically sold the active pharmaceutical ingredient form of
defibrotide to Sirton, who then manufactured and sold the finished products
primarily to one customer, Crinos S.p.A (“Crinos”). Crinos,
pursuant to its distribution agreement with the Company, then sold the finished
products throughout Italy under the trademarks Prociclide and
Noravid. In 2007, we changed our relationship with Sirton, from
customer to a contract manufacturer, and sold the finished forms of Prociclide
and Noravid to Crinos directly. On December 31, 2008, the
distribution agreement with Crinos expired and, consistent with the Company’s
overall strategy, the Company chose not to renew this agreement and discontinued
the manufacture of defibrotide to be finished into Prociclide and
Noravid.
In
connection with the expiration of the distribution agreement with Crinos, in
November 2008, we began limiting Sirton’s manufacturing of defibrotide to uses
for our clinical trials and compassionate use programs. These costs have been
classified as research and development costs.
Finally,
the Company leases space for manufacturing, offices, laboratories and storage
facilities from Sirton and FinSirton. These agreements expire on December 31,
2010 and 2013. Total expense under these operating leases for the years ended
December 31, 2006, 2007 and 2008 amounted to €167, €199 and €199,
respectively. See Note 18 for such operating lease
commitments.
For the
years ended December 31, 2006, 2007 and 2008, the Company had the following
transactions with FinSirton and Sirton:
|
|
|
For
the Year Ended
December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Product
sales
|
|
€ |
3,754 |
|
|
€ |
2,704 |
|
|
€ |
651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
- |
|
|
|
248 |
|
|
|
353 |
|
|
Research
and development
|
|
|
- |
|
|
|
185 |
|
|
|
298 |
|
|
Charges
from related parties
|
|
|
854 |
|
|
|
748 |
|
|
|
537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
854 |
|
|
|
1,181 |
|
|
|
1,188 |
|
As of
December 31, 2007 and 2008 the Company had the following balances with FinSirton
and Sirton:
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable – Sirton
|
|
€ |
4,147 |
|
|
€ |
2,103 |
|
|
Account
Receivable FinSirton
|
|
|
2 |
|
|
|
- |
|
|
|
|
|
4,149 |
|
|
|
2,103 |
|
|
Allowance
of doubtful accounts
|
|
|
- |
|
|
|
(1,783 |
) |
|
Accounts
Receivable, net
|
|
|
4,149 |
|
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Payable Sirton
|
|
|
2,077 |
|
|
|
320 |
|
|
Account
Payable FinSirton
|
|
|
18 |
|
|
|
5 |
|
|
|
|
|
2,095 |
|
|
|
325 |
|
Sirton
has been unable to make timely payments on outstanding
receivables. At December 31, 2008, proceeds from collections of our
accounts receivable from Sirton amounted to €999. For the year ended December
31, 2008, the Company and Sirton formally offset €3,227 of payables due to
Sirton against the same amount of receivables due from Sirton. Prior
to 2008 there was no allowance for the accounts receivable from
Sirton as all amounts were received relating to those
receivables.
We have
been advised that Sirton is seeking to raise funds for payment of the amounts
owed, including through the sale of real property or other assets; however, as
of today, none of the actions planned have been successful, raising doubt about
the realization of the net receivable. While the
Company continues to pursue the collection of such net receivable, we have
established an allowance for doubtful accounts of €1,783 and we have not
recognized revenue from product sales to Sirton that occurred after March 2008,
unless such sales were paid in advance, because one of the criteria indicated by
SAB 104 (“collectibility is reasonably assured”), was not met. As a result, the
Company has significantly eliminated its ongoing activities which result in
additional receivables from Sirton and is entering into agreements with
alternative customers and contract manufacturers. Approximately 92%, 53% and 12%
of the Company’s product sales for the years ended December 31, 2006, 2007 and
2008, respectively, have been to Sirton. The Company recognized bad debt expense
related to its receivables from Sirton in the amount of €1,783 for the year
ended December 31, 2008. No bad debt expense was recognized in
2007.
The
Company is also party to a License and Supply Agreement with Sigma-Tau
Pharmaceuticals, Inc. pursuant to which we have licensed the right to market
defibrotide to treat VOD in North America, Central America and South America to
Sigma-Tau Pharmaceuticals, Inc. and pursuant to which Sigma-Tau
Pharmaceuticals, Inc has agreed to purchase defibrotide for this use from
us. Sigma-Tau Pharmaceuticals, Inc. is an affiliate of several of our
large shareholders, including Sigma Tau Industrie Farmaceutiche
S.p.A. One of our board members, Marco Codella, is the Chief
Financial Officer of Sigma Tau Industrie Farmaceutice Riunite S.p.A., which is a
wholly-owned subsidiary of Sigma-Tau Finanziaria S.p.A.
The
accounting policies applied to transactions with affiliates are consistent with
those applied in transactions with independent third parties and management
believes that all related party agreements are negotiated on an arm’s length
basis.
4. COLLABORATIVE
ARRANGEMENTS
In
December 2001, the Company entered into a license and supply agreement with
Sigma-Tau Pharmaceuticals Inc. (as assignee of Sigma-Tau Industrie
Farmaceutiche Riunite S.p.A., hereinafter referred to as “Sigma Tau”). Under the
multi-year agreement, Sigma Tau obtained exclusive rights to distribute, market
and sell defibrotide to treat VOD in the United States. In 2005, the Company
expanded Sigma-Tau’s current license territory to all of North America, Central
America and South America. This license expires on the later of the eighth year
of the Company’s launch of the product or the expiration of the U.S. patent
regarding the product, which expires in 2010. In return for the
license, Sigma-Tau agreed to pay the Company an aggregate of $4,900, of which
€3,826 ($4,000) has been received to date, based on the exchange rate in effect
on the date of receipt. Sigma-Tau will owe the Company an additional
$350 performance milestone payment within 30 days of the end of a
Phase III pivotal study, and a $550 performance milestone payment within
30 days of obtaining an FDA New Drug Application or Biologic License
Application and other approvals necessary for the marketing of defibrotide in
the United States, if and when these events occur. The agreement also envisions
that the Company will produce and supply defibrotide to Sigma Tau for marketing
and distribution in the United States if and when the drug is approved by the
FDA.
If the
Company unilaterally discontinues development of defibrotide to treat VOD (after
written notice to Sigma-Tau) and then resumes the development, substantially
availing itself of the stages previously completed, either independently or with
a third party, within 36 months of the discontinuation, then the Company
will be required to promptly reimburse Sigma-Tau for the amounts received. The
Company has no intention to discontinue the development of the
product.
If during
the drug development stages the Company realizes that the activities to bring
the product to completion would require a material increase of expenditures, the
parties will discuss the increased costs and revisions to the terms of the
agreement; if the parties are unable to mutually agree on such revisions, either
party can terminate the agreement. If the Company or Sigma-Tau terminates the
agreement for that reason and the Company then resumes the development,
substantially availing itself of the stages previously completed, either
independently or with a third party, within 36 months of the termination,
the Company will be required to promptly reimburse Sigma-Tau for the amounts
received.
On
October 12, 2007, the Company and Sigma-Tau entered into a cost sharing
agreement to address the need for additional funding not included in the
original license and supply agreement. Under this agreement Sigma-Tau will
reimburse the Company for 50% of certain costs incurred in the Company’s ongoing
Phase III clinical trial of defibrotide to treat severe VOD. We recognize the
reimbursement of research and development expenses as revenue when we incur the
costs subject to reimbursement. For the year ended December 31, 2008, the
Company recorded €1.97 million of contributions received from Sigma-Tau
accounted as other revenue.
The
following table outlines the nature and amount of other revenue recognized under
the cost sharing agreement in the accompanying financial
statements:
|
|
|
For
the Year Ended
December
31,
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Research
and development cost reimbursement
|
|
€ |
- |
|
|
€ |
2,360 |
|
|
€ |
1,970 |
|
|
Upfront
payments recognized ratably
|
|
€ |
140 |
|
|
€ |
140 |
|
|
€ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
€ |
140 |
|
|
€ |
2,500 |
|
|
€ |
1,970 |
|
5.
ACQUISITION OF MARKETING AUTHORIZATION AND TRADEMARKS
On
December 28, 2006, the Company entered into a Master Agreement with Crinos
S.p.A. to acquire the Italian marketing authorizations and related trademarks to
Prociclide and Noravid (both forms of defibrotide) for
€16,000. Prociclide and Noravid have been sold in Italy to treat
vascular disease with risk of thrombosis. As part of the transaction,
Crinos waived its right of first refusal to market future therapeutic
indications for defibrotide in the European market, and the Company agreed to
pay Crinos a 1.5% royalty on net sales of defibrotide for the treatment and/or
prevention of VOD in Europe for seven years. The transfer of the
market authorizations was subject to approval by the Italian regulators, which
occurred on April 26, 2007.
The
Company entered into this transaction for long term strategic purposes.
Specifically, the Company will now be able to manage defibrotide globally with
control over the distribution of defibrotide and the flexibility to market
defibrotide itself or seek marketing partners for the European market. As a
result, the Company wrote off all but €2,260 of the €16,000 purchase
price (€13,740 charge) based primarily on an analysis of the net present value
of the estimated future cash flows from the sales of only the oral formulation
of defibrotide through December 31, 2008, as well as other cash flows through
2012. These remaining assets, marketing authorizations and trademarks, are
included in other intangible assets.
The
Company decided not to renew the agreements entered into with Crinos for the
distribution of Prociclide and Noravid in Italy, and allowed such agreements to
expire on December 31, 2008. Accordingly, the Company evaluated the
recoverability of the marketing authorizations and trademarks from its expected
future cash flows and, as reported in footnote 9, the Company wrote down the
remaining net book value of such assets amounting to €847 and €848,
respectively.
6. INVENTORIES
The Company’s inventories consisted
of:
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Raw
materials
|
|
€ |
385 |
|
|
€ |
526 |
|
|
Semi-finished
goods
|
|
|
845 |
|
|
|
117 |
|
|
Finished
goods
|
|
|
280 |
|
|
|
264 |
|
|
Total
|
|
€ |
1,510 |
|
|
€ |
907 |
|
At
December 31, 2007 and 2008, respectively, the Company reserved €547 and €56 to
adjust a by-product cost to its net realizable value and to account for excess
inventory compared with forecasted sales. Additionally, at December
31, 2008, the Company, in connection with the expiration and
non-renewal of the distribution agreement entered into with Crinos, wrote
down €1,228 of semi-finished and finished Prociclide and Noravid in
our inventory which included products returned by Crinos in January
2009.
7. PREPAID
EXPENSES AND OTHER CURRENT ASSETS
The
Company’s prepaid expenses and other current assets consisted of:
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
VAT
receivables
|
|
€ |
3,776 |
|
|
€ |
1,161 |
|
|
Tax
credit
|
|
|
- |
|
|
|
299 |
|
|
Other
prepaid expenses and current assets
|
|
|
1,068 |
|
|
|
718 |
|
|
Total
prepaid expenses and current assets
|
|
€ |
4,844 |
|
|
€ |
2,178 |
|
The value
added tax (or “VAT”)
amounts represent a tax on the value of consumption. VAT has no effect on the
Company’s operating results, as payments and receipts are allowed to be netted
against each other in periodic filings with the tax authorities. The VAT payment
system is a “custodial” relationship. VAT liabilities are generated when the
Company invoices customers, including the VAT amount, and VAT receivables are
created when the Company purchases goods and services subject to
VAT. The decrease in VAT receivable is primarily due to the
assignment, on June 23, 2008, of €2,100 VAT credit to Crinos. As a result of the
assignment of such VAT credit to Crinos, the Company offset an equivalent amount
of accounts payable due to Crinos. Additionally, in 2008, we obtained from the
Italian Tax Authorities reimbursement of VAT credit in the amount
of €1,153.
At
December 31, 2008, other prepaid expenses and current assets include the accrual
of a €496 receivable that Sigma-Tau Pharmaceuticals, Inc. has agreed to pay as a
reimbursement of costs incurred on Phase III trial for the treatment of severe
VOD pursuant to a cost-sharing letter agreement between the Company and
Sigma-Tau.
The tax
credit includes a residual amount of €299 as government grants received, in the
form of a tax credit, for 2007 research and development activities. 2007 tax
credit amounted to €791 of which €499 was utilized to offset social securities
and withholding taxes. These benefits have been accounted for in the
first half of 2008 based on reliable estimates of the amount of tax credit to
which the Company is entitled. The credit was accounted in compliance
with Law 244/07 and Law 296/06 enacted by the Italian Parliament which
established a tax credit in the measure of 10% of the research and development
costs incurred in taxable year 2007/2009 (increased to 40% of the costs incurred
on contracts entered into with University and Public Research Centre). The tax
credit, disclosed in the annual tax return, could have been utilized
automatically to offset any tax disbursement (including VAT and withholding
taxes).
On
January 28, 2009, Decree N. 185/2008, released by the Italian Authorities, which
amended Law 244/07 and Law 296/06 regarding the utilization of the tax credit,
was converted into Law N. 2/2009. The new law indicates that
preventive approval (so called “nulla osta”) by the Tax Authority is now
required for the utilization of the tax credit and that filing the annual tax
return is not alone sufficient to claim the utilization of such credit. As of
today, the qualification for the tax credit is not clear, because the law
provides for different procedures and treatment based on the commencement date
of research and development activities. Specifically, it is not
clear whether such preventive approval by the Tax Authority will affect the
Company’s ability to receive a tax credit on research and development activities
commenced prior to November 29, 2008. For these reasons, the tax
credit on 2008 research and development activities, amounting to €631, has not
been recognized as of December 31, 2008.
8. PROPERTY,
MANUFACTURING FACILITY AND EQUIPMENT
The
Company’s property, manufacturing facility and equipment consisted
of:
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net
book value
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net
book value
|
|
|
Land
and building
|
|
€ |
2,683 |
|
|
|
1,185 |
|
|
|
1,498 |
|
|
€ |
2,686 |
|
|
|
1,254 |
|
|
|
1,432 |
|
|
Plant
and machinery
|
|
|
14,434 |
|
|
|
6,700 |
|
|
|
7,734 |
|
|
|
14,977 |
|
|
|
7,587 |
|
|
|
7,390 |
|
|
Industrial
equipment
|
|
|
1,085 |
|
|
|
635 |
|
|
|
450 |
|
|
|
1,264 |
|
|
|
695 |
|
|
|
569 |
|
|
Other
|
|
|
1,047 |
|
|
|
380 |
|
|
|
667 |
|
|
|
1,060 |
|
|
|
473 |
|
|
|
587 |
|
|
Leasehold
improvements
|
|
|
295 |
|
|
|
78 |
|
|
|
217 |
|
|
|
322 |
|
|
|
154 |
|
|
|
168 |
|
|
Internally
Developed Software
|
|
|
458 |
|
|
|
68 |
|
|
|
390 |
|
|
|
674 |
|
|
|
105 |
|
|
|
569 |
|
|
Construction
in progress
|
|
|
588 |
|
|
|
- |
|
|
|
588 |
|
|
|
36 |
|
|
|
- |
|
|
|
36 |
|
|
|
|
€ |
20,590 |
|
|
|
9,046 |
|
|
|
11,544 |
|
|
€ |
21,019 |
|
|
|
10,268 |
|
|
|
10,751 |
|
As of
December 31, 2007 and December 31, 2008, property, manufacturing facility and
equipment include €460 of lab instruments acquired under capital lease
agreements. The related accumulated depreciation at December 31, 2007 and
December 31, 2008 was €47 and €45, respectively.
9. INTANGIBLE
ASSETS
The
Company’s intangible assets consisted of:
| |
|
December
31,
|
|
| |
|
2007
|
|
|
2008
|
|
|
|
|
Cost
|
|
|
Accumulated
amortization
|
|
|
Net
book value
|
|
|
Cost
|
|
|
Accumulated
amortization
|
|
|
Impairment
|
|
|
Net
book value
|
|
|
Patent
rights
|
|
€ |
1,093 |
|
|
|
595 |
|
|
|
498 |
|
|
€ |
1,230 |
|
|
|
750 |
|
|
|
480 |
|
|
|
- |
|
|
Licenses
and trademarks
|
|
|
1,280 |
|
|
|
184 |
|
|
|
1,096 |
|
|
|
1,297 |
|
|
|
355 |
|
|
|
847 |
|
|
|
95 |
|
|
Marketing
authorizations
|
|
|
1,131 |
|
|
|
133 |
|
|
|
998 |
|
|
|
1,131 |
|
|
|
283 |
|
|
|
848 |
|
|
|
- |
|
|
Total
|
|
€ |
3,504 |
|
|
|
912 |
|
|
|
2,592 |
|
|
€ |
3,658 |
|
|
|
1,388 |
|
|
|
2,175 |
|
|
|
95 |
|
The
amount of amortization expense for the years ended December 31, 2007 and
2008 was €479 and €476, respectively. We estimate that we will incur
amortization for the years ended December 31, 2009, 2010, 2011, 2012 and 2013 of
€23, €23, €16, €11 and €11,
respectively.
The
Company terminated the distribution agreement entered into with Crinos and plans
to submit a request for the withdrawal of Prociclide and Noravid (both forms of
defibrotide) from the Italian market. Such plan raised doubt
concerning the recoverability of these assets expected to be derived
from future cash flows, which has required the Company to write-down the
remaining net book value of the trademark and Italian marketing authorizations
for Prociclide and Noravid of €847 and €848, respectively.
In
connection with the expiration and non-renewal of the distribution agreement
with Crinos and the Company’s plan to withdraw Prociclide and Noravid from the
Italian market, the Company revised the asset value of the capitalized cost of
patents for which no future benefits are reasonably assured. Changes in the
carrying value are the result of the lack of future benefits to be derived over
the remaining useful life from these assets. The impact of the change
resulted in an increase of net loss of €480, which has been included in the
write-down of assets in the statement of operations
10. FAIR VALUE
MEASUREMENT
Effective January 1, 2008, we
implemented SFAS 157, “Fair
Value Measurements,” for
our financial assets and liabilities that are re-measured and
reported at fair value at each reporting period. The adoption of SFAS 157 to our
financial assets and liabilities did not have a material impact on our financial
position and results of operations.
SFAS 157 defines fair value, provides a framework for
measuring fair value, and requires expanded disclosures
regarding fair value measurements. SFAS 157 does not require assets
and liabilities that were previously recorded at cost to be recorded at fair
value. For assets and liabilities that are already required to
be disclosed at fair value, SFAS 157 introduced, or reiterated, a number of key
concepts which form the foundation of the fair value measurement approach to be
used for financial reporting purposes. The statement indicates, among other things, that a fair
value measurement assumes that the transaction to sell an asset or transfer a
liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or liability. SFAS 157
defines fair value based upon an exit price model.
Relative to SFAS 157, the FASB issued
FASB Staff Positions (FSP) 157-1 and 157-2. FSP 157-1 amends SFAS 157 to exclude
SFAS No. 13,
“Accounting for
Leases,” (SFAS
13) and its related
interpretive accounting pronouncements that address leasing transactions, while
FSP 157-2 delays the effective date of the application of SFAS 157 to fiscal
years beginning after November 15, 2008 for all non-financial assets and
non-financial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis. In
October 2008, the FASB issued FASB Staff Position (FSP) No. 157-3, Determining the Fair
Value of a Financial Asset When the Market for that Asset is Not
Active, that clarifies the
application of SFAS 157 in a market that is not active and
provides an example to illustrate key consideration in determining
the fair value of a financial asset when the market for that financial asset is
not active. We are
evaluating the impact, if any, FSP 157-3 will have on our non-financial assets
and liabilities.
SFAS 157 establishes a valuation
hierarchy for disclosure of the inputs to valuation used to measure fair value.
This hierarchy prioritizes the inputs into three broad levels as
follows:
Level 1 inputs, which include quoted
prices in active markets for identical assets or
liabilities.
Level 2 inputs, which include observable
inputs other than Level 1 inputs, such as quoted prices for similar
assets and liabilities;
quoted prices for identical or similar assets or liabilities in markets that are
not active, or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the asset or
liability; and
Level 3 inputs, which include
unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the underlying asset or
liability. Level 3 assets or liabilities include those whose fair value
measurements are determined
using pricing models, discounted cash flow methodologies or similar valuation
techniques, as well as significant management judgment or
estimation.
A financial asset or
liability’s classification within the hierarchy is
determined based on the
lowest level input that is significant to the fair value
measurement.
The following table sets forth our
financial assets that were accounted for at fair value on a recurring basis as
of December 31, 2008:
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2008 using
|
|
|
|
|
|
Total Carrying
Value at
December
31, 2008
|
|
|
Quoted prices in
active
markets
(Level
1)
|
|
|
Significant other
observable
inputs
(Level
2)
|
|
|
Significant
unobservable
inputs
(Level
3)
|
|
|
Cash and cash
equivalents
|
|
|
€ |
11,491 |
|
|
€ |
11,491 |
|
|
€ |
— |
|
|
€ |
— |
|
|
Available for sale
securities
|
|
|
|
510 |
|
|
|
510 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
€ |
12,001 |
|
|
€ |
12,001 |
|
|
€ |
- |
|
|
€ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of our cash and
cash equivalents and
available for sale securities are determined through market, observable and
corroborated sources. Available for sale securities refers to Banca
IntesaSanpaolo bond TV05/10/2004-11.
The
carrying amounts of accounts receivables, prepaid expenses, other current
assets, accounts payable and accrued expenses approximate fair values due to the
short-term maturities of these instruments.
11. ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses and other current liabilities consist of:
|
|
|
December
31,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Due
to employees
|
|
€ |
802 |
|
|
€ |
268 |
|
|
Due
to social security
|
|
|
220 |
|
|
|
218 |
|
|
Withholding
tax due
|
|
|
160 |
|
|
|
133 |
|
|
Other
payables
|
|
|
41 |
|
|
|
191 |
|
|
Total
|
|
€ |
1,223 |
|
|
€ |
810 |
|
12. CREDIT
FACILITY, LONG-TERM DEBT AND LEASES
Long term
debt, net of current maturities consists of:
|
|
|
|
|
December
31,
|
|
|
|
|
|
2007
|
|
|
2008
|
|
a)
|
Mortgage
loan bearing interest at the Euribor 6 month rate plus 1.0% due June 2014
(5.71% and 3.97% at December 31, 2007 and 2008
respectively)
|
|
|
2,600
|
|
|
2,200
|
|
b)
|
Equipment
loan secured by marketable securities, bearing interest at the Euribor 3
months rate plus 1.70% due April 2011 (6.38% and 4.59% at December 31,
2007 and 2008 respectively)
|
|
|
919
|
|
|
656
|
|
c)
|
Equipment
loan bearing interest at the Euribor 3 months rate plus 1.20% due June
2011 (5.88% and 4.09% at December 31, 2007 and 2008
respectively)
|
|
|
750
|
|
|
625
|
|
d)
|
Financing
loan bearing interest at the Euribor 1 months rate plus 1.00% due December
2011 (5.29% and 3.60% at December 31, 2007 and 2008,
respectively)
|
|
|
409
|
|
|
314
|
|
e)
|
Equipment
loans secured by the underlying equipment pursuant to the Sabatini Law,
interest at 2.1%
|
|
|
306
|
|
|
131
|
|
f)
|
Research
loan from the Italian Ministry for University and Research, interest at 1%
per annum, due January 2012
|
|
|
318
|
|
|
249
|
|
g)
|
Financing
loan bearing interest at the Euribor 3 months rate plus 1.00% due December
2011 (4.68% and 3.89% at December 31, 2007 and 2008,
respectively)
|
|
|
193
|
|
|
148
|
|
h)
|
Equipment
loan bearing interest at the Euribor 3 months rate plus 0.80% due December
2011 (5.48% and 3.69% at December 31, 2007 and 2008,
respectively)
|
|
|
188
|
|
|
144
|
|
i)
|
Research
loan from the Italian Ministry for University and Research, interest at 1%
per annum, due January 2012
|
|
|
-
|
|
|
147
|
|
|
|
|
|
5,683
|
|
|
4,614
|
|
|
Less
current
maturities
|
|
|
1,262
|
|
|
1,346
|
|
|
Total
|
|
€
|
4,421
|
|
€
|
3,268
|
The
equipment loan in the amount of €750 requires the Company to maintain €5,000 of
net shareholders’ equity determined in accordance with Italian generally
accepted accounting principles. The Company was in compliance with the covenant
at December 31, 2008.
The
Company’s marketable securities consist of debt securities, which have been
pledged to secure the Company’s repayment of the loan from Banca
Intesa-Mediocredito S.p.A. The loan agreement requires that pledged securities
equal at least 50% of the remaining loan principal at all times. Accordingly,
such securities will gradually be released from the pledge as the Company repays
the principal of the loan.
In
December 2008, we received a loan from the Minister for University and Research
granted through IntesaSanpaolo. The loan is to be used for the research and
development of defibrotide to treat and prevent VOD, and bears interest at 1.0%
per annum. We will repay this loan in seven installments due every six months
beginning January 2009. At December 31, 2008, the amount outstanding
under this loan was €147.
The
maturities of long-term debt are as follows:
|
|
|
December
31,
|
|
|
2010
|
|
|
1,192 |
|
|
2011
|
|
|
983 |
|
|
2012
|
|
|
493 |
|
|
2013
|
|
|
400 |
|
|
Thereafter
|
|
|
200 |
|
|
Total
|
|
€ |
3,268 |
|
13.
INTEREST RATE CAP AGREEMENTS
On June
28, 2006, the Company entered into an interest rate cap agreement with BNL
providing protection against fluctuations in interest rates with respect to 50%
of the total loan commitment. The Euribor rate portion of the interest rate was
capped at 4.00%. The agreement expires on June 28, 2011. At that time
50% of the principal is scheduled to be repaid. The fair market value of the
interest cap agreement as of December 31, 2008 is €(19).
On July
4, 2006 the Company entered into an interest rate cap agreement with San Paolo
IMI S.p.A. providing protection against fluctuations in interest rates with
respect to 50% of the total loan commitment. The Euribor rate portion of the
interest rate was capped at 3.75%. The agreement expires on July 6, 2009. At
that time 50% of the principal is scheduled to be repaid. The fair market value
of the interest cap agreement as of December 31, 2008 is €3.
On July
5, 2006 the Company entered into an interest rate cap agreement with Banca
Intesa S.p.A. providing protection against fluctuations in interest rates with
respect to 50% of the total loan commitment. The Euribor rate portion of the
interest rate was capped at 3.70%. The agreement expires on July 5, 2009. At
that time 50% of the principal is scheduled to be repaid. The fair market value
of the interest cap agreement as of December 31, 2008 is €1.
14.
INCOME TAXES
The
Company has not had income tax expenses for the years ended December 31, 2006,
2007 and 2008.
The
components of the Company’s deferred tax assets and liabilities are as
follows:
|
|
|
As
of December 31,
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Net
operating losses
|
|
€ |
12,067 |
|
|
€ |
15,532 |
|
|
Capitalization
of research & development costs
|
|
|
4,698 |
|
|
|
5,865 |
|
|
Property,
plant and equipment
|
|
|
-- |
|
|
|
744 |
|
|
Write
down of intangible assets
|
|
|
3,190 |
|
|
|
3,658 |
|
|
Allowance
on doubtful account
|
|
|
-- |
|
|
|
477 |
|
|
Inventory
write-off
|
|
|
-- |
|
|
|
249 |
|
|
Other
|
|
|
106 |
|
|
|
18 |
|
|
Deferred
tax assets
|
|
|
20,061 |
|
|
|
26,534 |
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
-- |
|
|
|
-- |
|
|
Deferred
tax liabilities
|
|
|
-- |
|
|
|
-- |
|
|
Net
deferred tax assets
|
|
|
20,061 |
|
|
|
26,534 |
|
|
Valuation
Allowance
|
|
|
(20,061 |
) |
|
|
(26,534 |
) |
|
Net
deferred taxes
|
|
€ |
-- |
|
|
€ |
-- |
|
Under the
Italian tax system, operating losses cannot be carried back to claim
refunds. Instead, losses are carried forward five years, and any
overpayments that may have been made can be credited against future amounts due
for income tax or employee social security payments. The Company has
reviewed its deferred tax assets in light of the cumulative loss that has been
incurred in the periods presented. Although the Company has paid some
income taxes in the past, the Company believes that with its expected future
research and development costs, it is more likely than not that the Company will
not be able to generate sufficient taxable income to utilize the deferred tax
assets prior to their expiration. Accordingly, a valuation allowance
has been established against these deferred tax assets.
As of
December 31, 2008, the Company’s tax position and relative carry-forward is as
follows:
|
Year
|
|
Tax loss
|
|
Tax benefit
|
|
Expiring date
|
|
2004
|
|
3,128
|
|
1,032
|
|
2009
|
|
2005
|
|
7,580
|
|
2,502
|
|
2010
|
|
2006
|
|
12,997
|
|
4,289
|
|
2011
|
|
2007
|
|
20,059
|
|
6,218
|
|
2012
|
|
2008
|
|
12,683
|
|
3,932
|
|
2013
|
The
Company provided no benefit for its operating losses due to the accumulated
losses noted above.
15.
SHAREHOLDERS’ EQUITY
The
Company had 14,946,317 and 14,956,317 ordinary shares of €1.00 par value per
share issued and outstanding as of December 31, 2007 and December 31, 2008,
respectively. On December 31, 2008, the authorized shares were
18,464,292. Authorized capital is as follows:
|
|
|
December
31
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Issued
and outstanding
|
|
|
14,946,317 |
|
|
|
14,956,317 |
|
|
Reserved
for share option plans
|
|
|
2,510,000 |
|
|
|
2,510,000 |
|
|
Reserved
for exercise of warrants
|
|
|
846,300 |
|
|
|
846,300 |
|
|
Reserved
for future offerings
|
|
|
151,675 |
|
|
|
151,675 |
|
|
|
|
|
18,454,292 |
|
|
|
18,464,292 |
|
In
conjunction with the convertible promissory notes sold in a private placement
from October 2004 to January 2005, the Company issued warrants for the purchase
of an aggregate of 503,298 ordinary shares at a purchase price (as adjusted) of
$9.52 per share. The warrants are fully vested, exercisable at the option of the
holder, in whole or in part, and expire five years from the date of grant.
Through December 31, 2008, the Company issued 22,734 ordinary shares upon
exercise of these warrants for proceeds of $216 (€170).
In
connection with its initial public offering (“IPO”), the Company granted
warrants to purchase 151,200 ordinary shares to the underwriters for services
rendered during the IPO. The warrants are fully vested, exercisable at the
option of the holder, in whole or in part, and expire five years from the date
of grant. Through December 31, 2008, we had issued 107,990 ordinary shares upon
exercise of these warrants at a price per share of $11.25, for proceeds of
$1,215 (€914).
In
connection with a private placement in 2005, the Company issued warrants for the
purchase of an aggregate of 620,450 ordinary shares at an exercise price of
$9.69 per ordinary share. The warrants are fully vested, exercisable at the
option of the holder, in whole or in part, and expire five years from the date
of grant. In addition, the Company issued to one of the placement agents a five
year warrant for the purchase of 93,068 ordinary shares at an exercise price of
$9.69 per ordinary share. As of December 31, 2008, all of the
warrants had been exercised and the Company had issued 713,518 ordinary shares
underlying these warrants for aggregate proceeds of $6,914
(€5,000).
In
connection with a private placement in 2006, the Company issued warrants for the
purchase of an aggregate of 388,705 ordinary shares at an exercise price of
$14.50 per ordinary share. In addition, the Company issued to one of the
placement agents a five year warrant for the purchase of 77,741 ordinary shares
at an exercise price of $17.40 per ordinary share. The warrants are fully
vested, exercisable at the option of the holder, in whole or in part, and expire
five years from the date of grant. Through December 31, 2008, we had issued
143,920 ordinary shares upon exercise of these warrants for proceeds of $2,087
(€1,490).
Warrants
A summary
of the warrant activity for the three years ended December 31, is presented
below.
|
|
|
Warrants
|
|
|
Weighted
Average Exercise Price
|
|
|
Balance,
December 31, 2005
|
|
|
1,216,816 |
|
|
€ |
8.14 |
|
|
$ |
9.61 |
|
|
Granted
|
|
|
617,646 |
|
|
€ |
12.13 |
|
|
$ |
14.07 |
|
|
Exercised
|
|
|
(197,458 |
) |
|
€ |
8.29 |
|
|
$ |
10.52 |
|
|
Cancelled
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
1,637,004 |
|
|
€ |
9.63 |
|
|
$ |
11.18 |
|
|
Granted
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Exercised
|
|
|
(790,704 |
) |
|
€ |
7.51 |
|
|
$ |
10.57 |
|
|
Cancelled
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Balance,
December 31, 2007
|
|
|
846,300 |
|
|
€ |
6.29 |
|
|
$ |
11.75 |
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Cancelled
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Balance,
December 31, 2008
|
|
|
846,300 |
|
|
€ |
6.29 |
|
|
$ |
11.75 |
|
16. EQUITY
INCENTIVE PLANS.
Amended
and Restated 2004 Equity Incentive Plan
Certain
of the Company’s employees and directors participate in the Amended and Restated
2004 Equity Incentive Plan and Italy Stock Award Plan. The Plans were
initially adopted on September 30, 2004 and amended on April 27,
2007. The Plans provide for the issue of incentives awards for up to
1,500,000 ordinary shares to employees, consultants, directors, and non-employee
directors. Awards may be in the form of either incentive and
non-qualified options, restricted share grants, share appreciate rights and
share bonuses. Our compensation committee determines the price of
share options granted under the incentive plan, provided that the exercise price
for an incentive share option cannot be less than 100% of the fair market value
of our ordinary shares on the date of grant. The term of share
options granted under the incentive plan generally may not exceed ten years,
although the capital increase relating to the ordinary shares issuable upon
exercise of such options expires on September 30, 2019.
Options
granted under the incentive plan vest at the rate determined by our compensation
committee. Typically, options granted under the incentive plan to officers and
employees vest over three years, with one-third of the shares covered by the
option vesting on the first anniversary of the grant date and the remainder
vesting monthly over the next two years.
Each
director who is not otherwise one of our employees or consultants (with one
exception) was automatically granted a nonstatutory share option for 10,000
ordinary shares upon his or her initial election or appointment to our board of
directors. These grants vest one-third one year after the date of grant and the
remainder monthly over the next two years, provided that the person is still
serving as a non-employee director on each such vesting date. Upon the
conclusion of each ordinary annual meeting of our shareholders, each
non-employee director receives a nonstatutory share option for 5,000 ordinary
shares. These grants vest in twelve equal monthly installments
beginning one month from the date of grant, provided that the person is still
serving as a non-employee director on each such vesting date. The exercise price
of the options granted to non-employee directors is equal to the fair market
value of our ordinary shares on the date of grant and the term ends ten (10)
years after the date of grant.
2004
Italy Stock Award Sub-Plan
Our
Amended and Restated 2004 Italy Stock Award Sub-Plan is a part of our Amended
and Restated 2004 Equity Incentive Plan and provides for the grant of share
options and the issuance of share grants to certain of our employees who reside
in the Republic of Italy and who are liable for income tax in the Republic of
Italy. Generally, the exercise price for a share option under the Italy sub-plan
cannot be less than the average of the closing price of our ordinary shares
listed on the American Stock Exchange or The Nasdaq Global Market System, as
applicable, over the 30 days preceding the date of grant.
Amended
and Restated Nonstatutory Stock Option Plan and Agreement
On
September 30, 2004, the Company adopted a Non-Statutory Stock Option Plan and
Agreement for 60,000 shares of its ordinary shares and on October 1, 2004,
granted to an officer of the Company a non-qualified option to purchase 60,000
shares. The option has a term ending on September 30, 2009.
2007
Stock Option Plan
On April
27, 2007, the Company’s shareholders approved the 2007 Stock Option Plan
providing for options that may be granted to the Company’s directors, employees
and consultants to purchase up to 1,000,000 ordinary shares, and a related
capital increase of the Company in cash for a maximum amount of €1.00 of par
value for such shares.
The
following table lists the balance available by the Plans at December 31,
2008.
|
|
|
Amended
and Restated Nonstatutory Plan and Agreement
|
|
|
Amended
and Restated 2004 Stock Option Plan
|
|
|
2007
Stock Option Plan
|
|
|
Number
of shares authorized
|
|
|
60,000 |
|
|
|
1,500,000 |
|
|
|
1,000,000 |
|
|
Number
of option granted since inception
|
|
|
60,000 |
|
|
|
1,500,000 |
|
|
|
327,178 |
|
|
Number
of options exercised
|
|
|
60,000 |
|
|
|
- |
|
|
|
- |
|
|
Number
of shares cancelled/expired
|
|
|
- |
|
|
|
25,000 |
|
|
|
5,000 |
|
|
Number
of shares available for grant
|
|
|
- |
|
|
|
- |
|
|
|
672,822 |
|
In
accordance with the provision of SFAS No. 123R, stock-based compensation cost is
measured at the grant date based on the fair value of the award ultimately
expected to vest and is recognized as expense over the service period, which is
generally the vesting period. The Company recorded non-cash
compensation expense of €908, €1,804 and €1,973 for the years ended December 31,
2006, 2007 and 2008, respectively.
|
|
|
Year
ended December 31,
2006
|
|
|
Year
ended December 31,
2007
|
|
|
Year
ended December 31,
2008
|
|
|
Cost
of goods sold
|
|
|
- |
|
|
|
5 |
|
|
|
87 |
|
|
Research
and development
|
|
|
289 |
|
|
|
437 |
|
|
|
385 |
|
|
General
and administrative
|
|
|
619 |
|
|
|
1,362 |
|
|
|
1,501 |
|
|
Total
stock based compensation
|
|
|
908 |
|
|
|
1,804 |
|
|
|
1,973 |
|
The
Company expects to incur significant non-cash compensation expense for option
grants in the future. As of December 31, 2008 total compensation cost
not yet recognized was €2,208, which is expected to be expensed over a maximum
vesting period of 36 months.
The
weighted average grant-date fair market value of options granted to officers,
employees, directors and consultants for the years ended December 31, 2006, 2007
and 2008, as of the date of the grants, was $4.42, $10.03 and $5.37, respectively. The fair
value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model. The valuation of options
granted was based on the following weighted average
assumptions:
|
|
|
Year
ended December 31,
2006
|
|
|
Year
ended December 31,
2007
|
|
|
Year
ended December 31,
2008
|
|
|
Risk
free interest rate
|
|
|
4.96 |
% |
|
|
4.47 |
% |
|
|
2.60 |
% |
|
Expected
dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
Expected
stock price volatility
|
|
|
40 |
% |
|
|
60 |
% |
|
|
60 |
% |
|
Expected
term
|
|
3
years
|
|
|
4.9
years
|
|
|
5.62
years
|
|
All of
the Company’s stock options vest ratably through continued employment over the
vesting period. The number of options expected to vest is based on estimated
forfeitures of options that were outstanding at December 31, 2008. Once
vested, options become exercisable immediately.
The
Black-Scholes model takes into account volatility in the price of the Company’s
stock, the risk-free interest rate, the estimated life of the option, the
closing market price of the Company’s stock and the exercise price. Some of
these inputs are highly subjective assumptions and these assumptions can vary
over time. Additionally the Company has limited historical information available
to support its estimate of certain assumptions required to value employee stock
options. In developing its estimate of expected term, due to the limited
history, the existing historical share option exercise experience is not a
particularly relevant indicator of future exercise
patterns. Additionally, due to the limited period that there has been
a public market for the Company’s securities, the historical volatility of the
Company’s ordinary shares may not be representative of the expected volatility.
Finally, the use of implied volatility, the volatility assumption inherent in
the market price of a company’s traded options, is not practicable because the
Company has no publicly traded options. In order to determine the
expected volatility, the Company analyzed other available information, including
the historical experience of a group of stocks in the Company’s industry having
similar traits. The risk-free rate for the expected term of the option is based
on the U.S. Treasury yield curve in effect at the time of grant. The Company
assumed that no dividends would be paid during the expected term of the
options.
As
share-based compensation expense recognized in the statement of operations for
the year ended December 31, 2008 is based on awards ultimately expected to vest,
reduced for estimated forfeitures. FAS 123R requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. Pre-vesting forfeiture percentage was
estimated to be approximately zero in the year ended December 31, 2008. If
pre-vesting forfeitures occur in the future, the Company will record the effect
of such forfeitures as the forfeitures occur.
The
Company applies EITF 96-18 in accounting for options granted to consultants. For
the years ended December 31, 2006, 2007 and 2008, the Company issued 15,000,
5,000 and nil options, respectively, to consultants and recorded non-cash
compensation expense of approximately €94, €44 and €nil,
respectively.
A summary
of the Company’s stock option activity based on the exchange rate in effect on
the grant date is as follows:
|
|
|
Shares
Available for Grant
|
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Options
outstanding at December 31, 2005
|
|
|
568,000 |
|
|
|
992,000 |
|
|
€ |
7.36 |
|
|
$ |
8.72 |
|
|
Granted
|
|
|
(145,000 |
) |
|
|
145,000 |
|
|
€ |
10.12 |
|
|
$ |
13.45 |
|
|
Exercised
|
|
|
- |
|
|
|
(22,000 |
) |
|
€ |
4.23 |
|
|
$ |
5.58 |
|
|
Cancellations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Options
outstanding at December 31, 2006
|
|
|
423,000 |
|
|
|
1,115,000 |
|
|
€ |
7.15 |
|
|
$ |
9.45 |
|
|
Options
available under 2007 Plan
|
|
|
1,000,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(529,500 |
) |
|
|
529,500 |
|
|
€ |
13.56 |
|
|
$ |
18.34 |
|
|
Exercised
|
|
|
- |
|
|
|
(28,000 |
) |
|
€ |
4.21 |
|
|
$ |
5.58 |
|
|
Cancellations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Options
outstanding at December 31, 2007
|
|
|
893,500 |
|
|
|
1,616,500 |
|
|
€ |
9.31 |
|
|
$ |
12.43 |
|
|
Granted
|
|
|
(220,678 |
) |
|
|
220,678 |
|
|
€ |
6.43 |
|
|
$ |
9.57 |
|
|
Exercised
|
|
|
- |
|
|
|
(10,000 |
) |
|
€ |
3.78 |
|
|
$ |
5.58 |
|
|
Cancellations
|
|
|
- |
|
|
|
(30,000 |
) |
|
€ |
11.08 |
|
|
$ |
14.56 |
|
|
Options
outstanding at December 31, 2008
|
|
|
672,822 |
|
|
|
1,797,178 |
|
|
€ |
8.96 |
|
|
$ |
12.08 |
|
Cash
received on stock options exercised amounted to $156 and $56 in the years ended
December 31, 2007 and 2008, respectively. The intrinsic value of
options exercised in 2006, 2007 and 2008 was $185, $423 and $74, respectively.
The estimated fair value of shares vested during 2006, 2007 and 2008 was $1,813,
$3,981 and $6,431, respectively.
The
following table summarizes outstanding and exercisable options as of December
31, 2008, based on the exchange rate in effect on December 31,
2008:
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
Exercise
Price
|
|
Number
Outstanding
|
|
Weighted-
Average Years Remaining on Contractual Life
|
|
Weighted
Average Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercise Price
|
|
€3.74
($5.20)
|
|
106,118
|
|
9.35
|
|
€3.74
($5.20)
|
|
20,634
|
|
€3.74
($5.20)
|
|
€5.09
($7.08)
|
|
15,000
|
|
6.82
|
|
€5.07
($7.08)
|
|
15,000
|
|
€5.09
($7.08)
|
|
€5.75
($8.00)
|
|
50,000
|
|
1.82
|
|
€5.75
($8.00)
|
|
50,000
|
|
€5.75
($8.00)
|
|
€6.47
($9.00)
|
|
832,000
|
|
6.51
|
|
€6.47
($9.00)
|
|
832,000
|
|
€6.47
($9.00)
|
|
€6.86
($9.55)
|
|
9,528
|
|
9.16
|
|
€6.86
($9.55)
|
|
3,176
|
|
€6.86
($9.55)
|
|
€7.19
($10.00)
|
|
25,000
|
|
0.96
|
|
€7.18
($10.00)
|
|
25,000
|
|
€7.19
($10.00)
|
|
€8.62
($12.00)
|
|
15,000
|
|
0.72
|
|
€8.62
($12.00)
|
|
15,000
|
|
€8.62
($12.00)
|
|
€9.05
($12.60)
|
|
90,000
|
|
7.42
|
|
€9.05
($12.60)
|
|
77,500
|
|
€9.05
($12.60)
|
|
€10.05
($13.98)
|
|
105,032
|
|
9.00
|
|
€10.04
($13.98)
|
|
35,011
|
|
€10.05
($13.98)
|
|
€10.63
($14.80)
|
|
22,500
|
|
8.96
|
|
€10.63
($14.80)
|
|
7,813
|
|
€10.63
($14.80)
|
|
€11.87
($16.52)
|
|
84,000
|
|
8.64
|
|
€11.87
($16.52)
|
|
35,060
|
|
€11.87
($16.52)
|
|
€12.47
($17.35)
|
|
35,000
|
|
7.32
|
|
€12.46($17.35)
|
|
33,889
|
|
€12.47
($17.35)
|
|
€13.44
($18.71)
|
|
40,000
|
|
8.32
|
|
€13.44
($18.71)
|
|
35,603
|
|
€13.44
($18.71)
|
|
€13.62
($18.95)
|
|
368,000
|
|
8.23
|
|
€9.25
($18.95)
|
|
216,302
|
|
€13.62
($18.95)
|
|
|
|
1,797,178
|
|
|
|
|
|
1,401,987
|
|
|
At
December 31, 2008 the aggregate intrinsic value of the outstanding options was
nil and the aggregate intrinsic value of the exercisable options was
nil.
17.
NET LOSS PER SHARE
Net loss
per share is computed using the weighted average number of ordinary shares
outstanding during the applicable period. Because the effect is
antidilutive, the Company has excluded from the calculation of diluted net loss
per share the impact of ordinary equivalent shares resulting from the assumed
exercise of stock options and warrants under the treasury stock
method. There is no difference between basic and diluted net loss per
share for all periods presented.
18.
COMMITMENTS AND CONTINGENCIES
In April
2007, the Company entered into a five year term capital lease agreement to
finance €218 in lab equipment purchases. The borrowing is payable in equal
monthly instalments of €4 over a period of 60 months. The agreement is
classified as a capital lease and expires in March 2012.
In April
2007, the Company entered into a five year term capital lease agreement to
finance €110 in lab equipment purchases. The borrowing is payable in equal
monthly instalments of €2 over a period of 60 months. The agreement is
classified as a capital lease and expires in March 2012.
Future
minimum lease payment non-cancellable under operating and capital leases as of
December 31, 2008 are:
|
|
|
Operating
Leases
|
|
|
Capital
Leases
|
|
|
2009
|
|
|
199 |
|
|
|
74 |
|
|
2010
|
|
|
199 |
|
|
|
73 |
|
|
2011
|
|
|
191 |
|
|
|
73 |
|
|
2012
|
|
|
31 |
|
|
|
21 |
|
|
Thereafter
|
|
|
30 |
|
|
|
|
|
|
Total
minimum lease payments
|
|
€ |
650 |
|
|
|
241 |
|
|
Less:
imputed interest
|
|
|
|
|
|
|
18 |
|
|
Present
value of net minimum lease payment
|
|
|
|
|
|
|
223 |
|
|
Less: Current
portion of capital lease payment
|
|
|
|
|
|
|
65 |
|
|
Long
term portion of capital lease payment
|
|
|
|
|
|
|
158 |
|
As of
December 31, 2008, we had €1,981 million of future payables under outstanding
contracts with various contract research organizations that are not revocable.
Most of these contracts are on a cost plus or actual cost basis.
19. SUBSEQUENT
EVENTS
In January 2009, we obtained from the
Italian Tax Authorities a reimbursement of VAT credit in the amount of
€244 and paid the last
installment of €4,000
pursuant to the Master Agreement entered into with Crinos.
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
|
|
|
GENTIUM
S.P.A.
|
|
| |
|
(Registrant)
|
|
| |
|
|
|
| |
By:
|
/s/ Laura
Ferro, M.D.
|
|
| |
|
Dr. Laura
Ferro
|
|
| |
|
President
and Chief Executive Officer
|
|
Date:
March 31, 2009
INDEX
OF EXHIBITS
|
Exhibit
|
|
Description
|
|
Charter
documents
|
| |
|
1(i)
|
|
Articles
of Association of Gentium S.p.A., formerly known as Pharma Research S.r.l.
dated November 11, 1993, incorporated by reference to Exhibit 3(i) to
the Registration Statement on Form F-1, Registration No. 333-122233,
previously filed with the SEC on January 24, 2005.
|
| |
|
|
|
1(ii)
|
|
Amended
and Restated Bylaws of Gentium S.p.A. dated April 27, 2007, incorporated
by reference to Exhibit 1(ii) to the Annual Report on Form 20-F previously
filed with the SEC on April 30, 2007.
|
| |
|
|
|
American
Depositary Share Documents
|
| |
|
2.1
|
|
Form
of Deposit Agreement among Gentium S.p.A., The Bank of New York and the
owners and beneficial owners from time to time of American Depositary
Receipts (including as an exhibit the form of American Depositary
Receipt), incorporated by reference to Exhibit 4.6 to Amendment No. 5 to
the Registration Statement on Form F-1, Registration No. 333-122233,
previously filed with the SEC on June 9, 2005.
|
| |
|
|
|
2.2
|
|
Form
of American Depositary Receipt (see Exhibit 2.1).
|
| |
|
|
|
Security
Subscription Agreements
|
| |
|
2.3
|
|
Securities
Subscription Agreement among Gentium S.p.A. and the other parties thereto
dated as of May 31, 2006, incorporated by reference to Exhibit 4.9.1 to
the Registration Statement on Form F-3, Registration No. 333-135622, previously filed
with the SEC on July 6, 2006.
|
| |
|
|
|
2.4
|
|
Securities
Subscription Agreement among Gentium S.p.A. and the other parties thereto,
dated as of February 6, 2007, incorporated by reference to Exhibit 2 to
the report on Form 6-K, previously filed with the SEC on February 7,
2007.
|
| |
|
|
|
Warrants
|
| |
|
2.5
|
|
Form
of warrant (regarding Series A financing), incorporated by reference to
Exhibit 4.2.2 to the Registration Statement on Form F-1, Registration No.
333-122233, previously filed with the SEC on January 24,
2005.
|
| |
|
|
|
2.6
|
|
Form
of Representatives’ Purchase Option between Gentium S.p.A. and Maxim Group
LLC and I-Bankers Securities Inc., incorporated by reference to
Exhibit 1.2 to Amendment No. 5 to the Registration Statement on Form F-1,
Registration No. 333-122233, previously filed with the SEC on June 9,
2005.
|
| |
|
|
|
2.7
|
|
Form
of American Depositary Shares Purchase Warrant by Gentium S.p.A. dated
October 14, 2005, incorporated by reference to Exhibit 4.8.2 to the
Registration Statement on Form F-1, Registration No. 333-130796,
previously filed with the SEC on December 30, 2005.
|
| |
|
|
|
2.8.1
|
|
Form
of American Depositary Shares Purchase Warrant by Gentium S.p.A. dated
June 6, 2006, incorporated by reference to Exhibit 4.9.2 to the
Registration Statement on Form F-3, Registration No. 333-135622,
previously filed with the SEC on July 6,
2006.
|
|
Exhibit
|
|
Description
|
|
2.8.2
|
|
Form
of Ordinary Share Warrant by Gentium S.p.A. dated June 6, 2006,
incorporated by reference to Exhibit 4.9.3 to the Registration Statement
on Form F-3, Registration No. 333-135622, previously filed with the SEC on
July 6, 2006.
|
| |
|
|
|
Investor
Rights and Registration Rights Agreements
|
| |
|
2.9.1
|
|
Form
of Investors’ Rights Agreement between Gentium S.p.A. and holders of the
Series A senior convertible promissory notes and warrants dated
October 15, 2004, incorporated by reference to Exhibit 4.2.4 to the
Registration Statement on Form F-1, Registration No. 333-122233,
previously filed with the SEC on January 24, 2005.
|
| |
|
|
|
2.9.2
|
|
Amendment
No. 1 to Gentium S.p.A. Series A Senior Convertible Promissory
Notes, Warrants, Subscription Agreements and Investor Rights Agreements
among Gentium S.p.A. and the other parties thereto dated May 27,
2005, incorporated by reference to Exhibit 4.2.6 to Amendment No. 4 to the
Registration Statement on Form F-1, Registration No. 333-122233,
previously filed with the SEC on May 31, 2005.
|
| |
|
|
|
2.10
|
|
Investors’
Rights Agreement by and among Gentium S.p.A., Alexandra Global Master
Fund Ltd. and Generation Capital Associates made as of
January 10, 2005, incorporated by reference to Exhibit 4.3 to the
Registration Statement on Form F-1, Registration No. 333-122233,
previously filed with the SEC on January 24, 2005.
|
| |
|
|
|
2.11
|
|
Investors’
Rights Agreement by and among Gentium S.p.A. and Sigma Tau Finanziaria
S.p.A. made as of April 4, 2005, incorporated by reference to Exhibit
4.5 to Amendment No. 1 to the Registration Statement on Form F-1,
Registration No. 333-122233, previously filed with the SEC on April 7,
2005.
|
| |
|
|
|
2.12
|
|
Registration
Rights Agreement among Gentium S.p.A. and the other parties thereto made
and entered into as of October 14, 2005, incorporated by reference to
Exhibit 4.8.3 to the Registration Statement on Form F-1, Registration No.
333-130796, previously filed with the SEC on December 30,
2005.
|
| |
|
|
|
2.13
|
|
Registration
Rights Agreement among Gentium S.p.A. and the other parties thereto made
and entered into as of June 6, 2006, incorporated by reference to Exhibit
4.9.4 to the Registration Statement on Form F-3, Registration No.
333-135622, previously filed with the SEC on July 6,
2006.
|
| |
|
|
|
2.14
|
|
Registration
Rights Agreement among Gentium S.p.A. and the other parties thereto made
and entered into as of February 9, 2007, incorporated by reference to
Exhibit 4.10.3 to the Registration Statement on Form F-3, Registration No.
333-141198, previously filed with the SEC on March 9,
2007.
|
| |
|
|
|
Equity
Incentive and Stock Option Plans
|
| |
|
4.1.1
|
|
Amended
and Restated 2004 Equity Incentive Plan, incorporated by reference to
Exhibit 10.1 to the Registration Statement on Form S-8, Registration No.
333-137534, previously filed with the SEC on September 22,
2006.
|
| |
|
|
|
4.1.2
|
|
Amendment
No. 1 to Amended and Restated 2004 Equity Incentive Plan, made as of March
26, 2007, incorporated by reference to Exhibit 4.1.2 to the Annual Report
on Form 20-F for the year ended December 31, 2007, previously filed with
the SEC on April 30, 2007.
|
| |
|
|
|
4.2.1
|
|
Amended
and Restated Nonstatutory Share Option Plan and Agreement dated March 23,
2006, incorporated by reference to Exhibit 4.2 to the Annual Report on
Form 20-F for the year ended December 31, 2005, previously filed with the
SEC on May 30,
2006.
|
|
Exhibit
|
|
Description
|
|
4.2.2
|
|
Amendment
No. 1 to Amended and Restated Nonstatutory Share Option Plan and
Agreement, made as of March 26, 2007, incorporated by reference to Exhibit
4.2.2 to the Annual Report on Form 20-F for the year ended December 31,
2007, previously filed with the SEC on April 30, 2007.
|
| |
|
|
|
4.3
|
|
2007
Stock Option Plan, dated March 26, 2007, incorporated by reference to
Exhibit 4.42 to the Annual Report on Form 20-F for the year ended December
31, 2007, previously filed with the SEC on April 30,
2007.
|
| |
|
|
|
Loan
Agreements
|
| |
|
4.4
|
|
Ministry
for Universities, Scientific and Technological Research Loan granted to
Gentium S.p.A., successor in interest to Crinos Industria Farmacobiologica
S.p.A., by Sanpaolo Imi S.p.A., dated September 27, 2000,
incorporated by reference to Exhibit 10.6 to the Registration Statement on
Form F-1, Registration No. 333-122233, previously filed with the SEC on
January 24, 2005.
|
| |
|
|
|
4.5
|
|
Loan
Agreement between Banca Nazionale del Lavoro S.p.A. and Gentium S.p.A.
dated June 14, 2006 incorporated by reference to Exhibit 10.7.3 to the
Registration Statement on Form F-3, Registration No. 333-135622,
previously filed with the SEC on July 6, 2006.
|
| |
|
|
|
4.6
|
|
Loan
Agreement for €230,000 with Banca Intesa S.p.A., dated December 20, 2006,
incorporated by reference to Exhibit 2 to the report on Form 6-K,
previously filed with the SEC on February 2, 2007.
|
| |
|
|
|
4.7
|
|
Loan
Agreement for €500,000 with Banca Intesa S.p.A., dated December 20, 2006,
incorporated by reference to Exhibit 3 to the report on Form 6-K,
previously filed with the SEC on February 2, 2007.
|
| |
|
|
|
4.8
|
|
Loan
Agreement for €225,000 with Banca Intesa S.p.A., dated December 20, 2006,
incorporated by reference to Exhibit 4 to the report on Form 6-K,
previously filed with the SEC on February 2, 2007.
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| |
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4.9
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Financing
Contract between Banca Intesa Mediocredito S.p.A. and Gentium S.p.A. dated
April 20, 2006, incorporated by reference to Exhibit 4.36.2 to the Annual
Report on Form 20-F for the year ended December 31, 2005, previously filed
with the SEC on May 30, 2006.
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| |
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4.10
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Loan
Agreement, dated June 30, 2006, between San Paolo IMI S.p.A. and Gentium
S.p.A. , incorporated by reference to Exhibit 4.43 to the Annual Report on
Form 20-F for the year ended December 31, 2006, previously filed with the
SEC on April 30, 2007.
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Clinical
Trial Agreements
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| |
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4.11.1
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Master
Services Agreement, dated March 14, 2007, between MDS Pharma Services
(US), Inc. and Gentium S.p.A., incorporated by reference to Exhibit 1 to
the report on Form 6-K, previously filed with the SEC on March 20,
2007.
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4.11.2
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Statement
of Work, effective August 8, 2007, between Gentium S.p.A. and MDS Pharma
Services, Inc. (prospective arm), incorporated by reference to Exhibit 3
to the report on Form 6-K, previously filed with the SEC on August 22,
2007.
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4.11.3
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Statement
of Work, effective August 8, 2007, between Gentium S.p.A. and MDS Pharma
Services, Inc. (historical arm), incorporated by reference to Exhibit 4 to
the report on Form 6-K, previously filed with the SEC on August 22,
2007.
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Exhibit
|
|
Description
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License
and Distribution Agreements
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| |
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4.12.1
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License
and Supply Agreement by and between Gentium S.p.A. and Sigma-Tau
Pharmaceuticals, Inc. (assignee of Sigma Tau Industrie Farmaceutiche
Riunite S.p.A.) dated December 7, 2001, incorporated by reference to
Exhibit 10.15 to the Registration Statement on Form F-1, Registration No.
333-122233, previously filed with the SEC on January 24,
2005.
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4.12.2
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Letter
Agreement, dated October 12, 2007, between Gentium S.p.A. and Sigma-Tau
Pharmaceuticals, Inc., incorporated by reference to Exhibit 99.4 to the
report on Form 6-K, previously filed with the SEC on December 12,
2007.
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|
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4.13.1
|
|
Contract
to Supply Active Ingredients between Sirton Pharmaceuticals
S.p.A. and Gentium S.p.A. dated January 2, 2006, incorporated by
reference to Exhibit 4.24.2 to the Annual Report on Form 20-F for the year
ended December 31, 2005, previously filed with the SEC on May 30,
2006.
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4.13.2
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Amendment
No. 1 to Contract to Supply Active Ingredients, effective as of December
7, 2007, by and between Gentium S.p.A. and Sirton Pharmaceuticals
S.p.A.
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4.14.1
|
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Master
Agreement, dated December 28, 2006, among Gentium S.p.A., Crinos S.p.A.,
SFI Stada Financial Investments Ltd. and SFS Stada Financial Services
International Ltd., incorporated by reference to Exhibit 2 to the report
on Form 6-K, previously filed with the SEC on January 3,
2007.
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| |
|
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4.14.2
|
|
Distribution
Agreement, dated December 28, 2006, between Gentium S.p.A. and Crinos
S.p.A., incorporated by reference to Exhibit 6 to the report on Form 6-K,
previously filed with the SEC on January 3, 2007.
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| |
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4.21*
|
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Technical
Transfer Services Agreement, dated February 2, 2009, between Gentium
S.p.A. and Patheon Italia S.p.A.
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| |
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4.22.1
|
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Technical
Agreement, dated February 26, 2009, between Gentium S.p.A. and IDIS
Limited.
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| |
|
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4.22.2*
|
|
Supply
and Distribution Agreement, dated March 6, 2009, between Gentium S.p.A.
and IDIS Limited.
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| |
|
|
|
Management
Services Agreements
|
| |
|
4.15
|
|
Service
Agreement between FinSirton S.p.A. and Gentium S.p.A. dated
January 2, 2006, incorporated by reference to Exhibit 10.25.2 to the
Annual Report on Form 20-F for the year ended December 31, 2005,
previously filed with the SEC on May 30, 2006.
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| |
|
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4.16
|
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Service
Agreement between Sirton Pharmaceuticals S.p.A. and Gentium S.p.A. dated
January 2, 2006, incorporated by reference to Exhibit 10.26.2 to the
Annual Report on Form 20-F for the year ended December 31, 2005,
previously filed with the SEC on May 30, 2006.
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| |
|
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Leases
|
| |
|
4.17
|
|
Commercial
Lease Contract between Gentium S.p.A. and Sirton Pharmaceuticals S.p.A.
dated January 1, 2005, incorporated by reference to Exhibit 10.33 to
Amendment No. 2 to the Registration Statement on Form F-1, Registration
No. 333-122233, previously filed with the SEC on May 10,
2005.
|
|
Exhibit
|
|
Description
|
|
4.18
|
|
Commercial
Lease Contract between Gentium S.p.A. and FinSirton S.p.A. dated
January 1, 2005, incorporated by reference to Exhibit 10.32 to
Amendment No. 2 to the Registration Statement on Form F-1, Registration
No. 333-122233, previously filed with the SEC on May 10,
2005.
|
| |
|
|
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4.19
|
|
Commercial
Lease Contract between Gentium S.p.A. and FinSirton S.p.A. dated January
1, 2007, incorporated by reference to Exhibit 4.32.2 (improperly coded as
Exhibit 4.43(2)) to the Annual Report on Form 20-F for the year ending
December 31, 2006, previously filed with the SEC on April 30,
2007.
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| |
|
|
|
Miscellaneous
|
| |
|
4.20
|
|
Form
of indemnification agreement between Gentium S.p.A. and each officer and
director, incorporated by reference to Exhibit 10.34 to Amendment No. 2 to
the Registration Statement on Form F-1, Registration No. 333-122233,
previously filed with the SEC on May 10, 2005.
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|
Certifications
and Consents
|
| |
|
12.1
|
|
Chief
Executive Officer Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
| |
|
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12.2
|
|
Chief
Financial Officer Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
| |
|
|
|
13.1
|
|
Chief
Executive Officer Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
| |
|
|
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13.2
|
|
Chief
Financial Officer Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
| |
|
|
|
15(a)
|
|
Consent
of Reconta Ernst & Young S.p.A. dated March 30,
2009.
|
* Portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commision pursuant to a request for
confidential treatment.